So, the cryptocurrency explosion has caught the eye of central bankers. To be fair (really fair) there are some central banks that ARE on top of the digital coins (Russia, China, Sweden) just NOT in the U.S. or Europe (and others). But now the central banks have realized that there is a genuine threat to “official” currencies and they are…….concerned. Like, the horse is already out of the barn while the bankers were playing QE games. Or, perhaps, the big bankers just thought these “new coin toys” would just fade away like beanie baby’s. NOT.
“The boom in cryptocurrencies and their underlying technology is becoming too big for central banks, long the guardian of official money, to ignore.
Until recently, officials at major central banks were happy to watch as pioneers in the field progressed by trial and error, safe in the knowledge that it was dwarfed by roughly $5 trillion circulating daily in conventional currency markets. But now as officials turn an eye toward the increasingly pervasive technology, the risk is that they’re reacting too late to both the pitfalls and the opportunities presented by digital coinage.
“Central banks cannot afford to treat cyber currencies as toys to play with in a sand box,” said Andrew Sheng, chief adviser to the China Banking Regulatory Commission and Distinguished Fellow of the Asia Global Institute, University of Hong Kong. “It is time to realize that they are the real barbarians at the gate.”
Bitcoin — the largest and best-known digital currency — and its peers pose a threat to the established money system by effectively circumventing it. Money as we know it depends on the authority of the state for credibility, with central banks typically managing its price and/or quantity. Cryptocurrencies skirt all that and instead rely on their supposedly unhackable technology to guarantee value.
If they don’t get a handle on bitcoin and their ilk, and more people adopt them, central banks could see an erosion of their control over the money supply. The solution may be in the old adage, if you can’t beat them, join them.
The People’s Bank of China has done trial runs of its prototype cryptocurrency, taking it a step closer to being the first major central bank to issue digital money. The Bank of Japan and the European Central Bank have launched a joint research project which studies the possible use of distributed ledger — the technology that underpins cryptocurrencies — for market infrastructure…
Full Story at Bloomberg