How Central Banks Intend To Fight CryptoCurrencies

Submitted by Louis Cammarosano of Smaulgld

* * *

Based on remarks to Bundesbank Policy Symposium in a Speech “Frontiers in Central Banking – Past, Present and Future” contain clues of the battleplan. What if they fail?


As cryptocurrencies, which trade outside the banking system attract more capital, governments and central banks are devising ways to try and stop and or control their rise.

In “Cryptocurrencies Fiat Killers or Strengtheners” we noted how some Ethereum projects aim to make blockchain assets spendable through the banking system via connecting them to Visa and Mastercard.

In “Bill Would Require a Declaration of Digital Currency Holdings at the Border” we noted that the US Congress has tasked the U.S. Secretary of Homeland Security and Commissioner of U.S. Customs and Border Protection to devise a plan to stop the flows of cryptocurrencies into the country.

Last week, at the Bundesbank Policy Symposium, in a speech entitled “Frontiers in Central Banking – Past, Present and Future” Dr Jens Weidmann, President of the Deutsche Bundesbank and Chairman of the Board of Directors of the Bank for International Settlements gave a speech outlining some ideas on how to best address the challenges that cyrptocurrencies pose to central banks.

digital currencies bitcoin litecoin monero ethereum

The Plan

After explaining that central banks are creatures born of crisis in that they are designed to come to the rescue when there are financial crisis, Dr. Weidman, noted that market interventions by central banks often provide financial stability, but not with out creating additional risks.

Towards the end of his speech, Dr. Weidman remarked that policy intervention may be required, not to address a crisis, but to address technology. Digitalization has the potential to provide financial benefits to the economy, with the risk, however, of disintermediating central banks. As such, the ability of central banks to conduct monetary policy diminishes proportionally to the increase of digitalization.

Dr. Weidman dismisses the notion that privately issued digital currencies may eliminate central bank currencies, reasoning that “central banks are better able to deliver price stability than a rigid monetary rule or an algorithm.”

Therefore, one consideration might be that the central banks themselves would issue their own digital currencies- something that the central banks of Russia and China are considering. If central banks created digital currencies it would make those holding their liquid assets in the form of central bank digital currencies, the public would have greater protection because “central banks cannot become insolvent.”

Dr. Weidman notes that in times of crisis, money holders would withdraw their bank deposits and transfer them into the official digital currency, thereby rapidly withdrawing liquidity from the private banking sector in a digital bank run.

Without deposits, Dr. Weidman observes, banks could not make loans.

Weidman’s Conclusion

“My personal take on this is that central banks should strive to make existing payment systems more efficient and still faster than they already are – instant payment is the buzzword here. I am pretty confident that this will reduce most citizens’ interest in digital currencies.

Discussion

1. Will “instant payment systems” run by central banks render public interest in private cryptocurrencies irrelevant or keep them at the fringe?

2. What if the central banks create instant payment systems, but the public interest in cryptocurrencies does not abate?

3. Will central banks instead create their own digital currencies and in effect kill off the private banking sector and become the banking system in their respective countries with the abilities to create loans, make credit decisions, issue credit and track all transactions?

Comments

French Bloke Mango327 Fri, 06/23/2017 - 06:07 Permalink

As far as I'm concerned, the whole argument regarding CB's creating crypto's to regain control is a non starter. They'll be priced in USDS, GBP, JPY & EUR and the ability to expand the base will always be there. So nothing will be solved compared to the limits in place for the capacity to generate more BTC, ETH, etc. So non CB crypto's will always hold their value complared to the CB's.Of course, additional non CB crypto's can be created (ie.Litecoin and more) so that is an expansion of the non CB crypto base which may eventually dampen the price of these crypto's overall.The actual plan may be that CB's unofficially create new crypto's masquerading as uncontrolled, thus fooling the public into thinking that they are just like all the others. Then they can expand the base at will without public awareness. They may already have done so but we'll be the last to know.

In reply to by Mango327

Jimmy Jimmereeno Manthong Thu, 06/22/2017 - 22:17 Permalink

/* Style Definitions */
table.MsoNormalTable
{mso-style-name:"Table Normal";
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-qformat:yes;
mso-style-parent:"";
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin-top:0in;
mso-para-margin-right:0in;
mso-para-margin-bottom:10.0pt;
mso-para-margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:"Calibri","sans-serif";
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-fareast;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:"Times New Roman";
mso-bidi-theme-font:minor-bidi;}
Def.  insolvent:  unable to satisfy creditors or discharge liabilities, either because liabilities exceed assets or because of inability to pay debts as they mature. "...because “central banks cannot become insolvent.”  That is a fallacy. Def.  bank credit:  banks create loans (credit) out of nowhere - without/prior to  positive balances in creditors' accounts. "...Without deposits, Dr. Weidman observes, banks could not make loans."  That is a fallacy.  

In reply to by Manthong

AtATrESICI Crypto-World-Order (not verified) Thu, 06/22/2017 - 21:57 Permalink

I would love to see the CBs crash and burn more than 99.999% of the world's population. I own, sell, trade, and make money from cryptos. /me I do not have the slightest inkling that the owners will allow cryptos to over take their monetary paradigm. Have you seen the video of the last moments of Gaddafi's life? If the MIC/Bankers/Owners were able to take down a sovereign leader in a sovereign country, what do you think they're going to do to a handful of dudes who write algos for a living?

I hope to be totally fucking wrong. Real wealth/power is for the Owners it is not for us surfs. Like i have said before try and start a fintech or just a crypto ATM, then get back to me regarding the banking and regulation systems love for crypto.

In reply to by Crypto-World-Order (not verified)

LetThemEatRand Thu, 06/22/2017 - 20:46 Permalink

Crypto currencies are to central banks as legalizing drugs would be to drug cartels.  The CB's won't go down without a fight, and given the fact that they own this place and literally fund the MIC, I doubt crypto is going to win it.

LetThemEatRand Crypto-World-Order (not verified) Thu, 06/22/2017 - 21:23 Permalink

Well, I'm enjoying a cold one and posting here so that's kind of living in the moment.Cryptos are fighting the Fed.  The Fed has been around for more than 100 years, and is stronger today that it was yesterday because it owns the politicians, the police, the military, and the MSM.  Is it possible to beat them anyway?  Sure.  Would I bet on it?  No.

In reply to by Crypto-World-Order (not verified)

Herodotus Crypto-World-Order (not verified) Thu, 06/22/2017 - 21:31 Permalink

Crypto-currency can never be a store of value because there is no limit to the number of currency units that can be created.  That should already be obvious.  As more units are created, the value of each unit will fall in purchasing power if the rate of crypto-currency creation exceeds the rate of goods production.

In reply to by Crypto-World-Order (not verified)

gold rubeberg Crypto-World-Order (not verified) Thu, 06/22/2017 - 23:51 Permalink

How's that BTC done over the last 5000 years?

How do you expect it will do over the next 5000?

Heck, considering how far technology has come in just the past 50 years, you can't even count on it being around 50 years from now. Anybody remember COBOL?

You just can't take this stuff seriously without wearing some serious short term blinders.

In reply to by Crypto-World-Order (not verified)