Central Banks & Cryptocurrencies… A Love-Hate relationship
Most of us know that one of the primary functions of central banks around the world is the price stability in their economy by controlling the demand/supply of fiat money. But this has been challenged in recent times with the advent of the craze called Crypto Mania!
Millions of investors looking for quick & mammoth returns and to opt-out from government-run & controlled paper currencies have surged into digital currencies, catapulting Bitcoin, the world’s biggest, from $1,000 to almost $20,000 and back to below $12,000 in the last 12 months.
The decentralized Blockchain-based currencies like Bitcoin, Ethereum, etc. work on an exact opposite paradigm & functionality of central banks’ issued paper money. And for this very reason, the central banks around the world look at these digital entities with skepticism, to say the least.
The initial push back & immense discomfort of central banks to even consider adopting them has been replaced with a muted acceptance but only in the case, a digital currency issued by their central authority controlled & regulated by them. A number of major central banks are either discussing this proposition or actively pondering over it. Let’s take a look at some of them.
US Federal Reserve (FOMC) The Federal Reserve’s think tank is still behind the curve in investigating the idea for a central bank-issued digital currency. Right now they seem to be more worried about the privacy issues related to Cryptocurrencies & it being used for nefarious purposes as suggested by the head of US Treasury Steve Mnuchin.
People’s Bank of China (PBOC) Nowhere else has this tug of war been more evident than in China where Central Bank of China is conducting research to issue the country’s own sovereign digital currency. Not very surprising coming from PBOC where even the Chinese Yuan (legal official tender) is not completely floated till now.
The fear of losing control is such that China has banned companies from raising any financing through ICOs (Initial Coin offering), stopped bitcoin exchanges from operating on its soil & a rumor circulating lately that China is considering banning all mining operations within its jurisdiction, which accounts for almost 80% of the world’s Crypto mining operations.
However, this rumor was recently quashed by the PBOC. The official hardline stance has slowly transformed from denial & non-acceptance to one which neither encourages nor hampers such activities.
Bank of Japan (BoJ) Japan is the second biggest market for cryptos trading & home to some of the biggest digital exchanges in the world. Nowhere else is there so much acceptance to the cryptos as Japan. A recent hack of over $500 million at Coincheck has raised a red flag for financial authorities where the cryptos are already regulated & assimilated in the system.
These rumors that BoJ is considering an alternative digital currency have been put to rest with the recent comment from Yuko Kawai, the Head of the Bank of Japan (BoJ) FinTech division, saying it’s not under any consideration. Late last year it was reported that Japanese banks were working on issuing a cryptocurrency, J Coin, ahead of the 2020 Tokyo Olympics which will be pegged one-to-one with the Yen. It will be tradable for goods and services through smartphones.
Russian Central Bank Russia has been toying with the idea of introducing their own digital currency called the “Crypto Ruble” whose main focus would be to evade western sanctions — Ironical since back in 2014, the Russian central bank called bitcoin “quasi-money” and had said that it was being used to launder money from criminal activities, and tax evasion.
Jump to present day & The Russian Finance Ministry drafted a new bill on cryptocurrency last Friday in hopes it will ultimately be signed into law, moving Russia further ahead in the world of digital currency trading. The bill states that cryptocurrencies are not an authorized means of payment in Russia. Therefore, crypto-based on this draft is not money. The opinion by the Finance Ministry rightly reflects the position expressed last year by Central Bank president Elvira Nabiullina.
Bank of England (BoE) Like most of its counterparts, BoE has also seriously come close to considering launching a digital currency linked to Pound Sterling. As per recent reports, however, The Bank of England has dropped plans to launch its own digital currency amid concerns about its impact on the financial system — this was only a few days after the Central bank had said that one of its research units is investigating the introduction of a cryptocurrency linked to pounds sterling. The research team was expected to report back within the next 12 months.
Bank of Korea (BoK) South Korea is the 3rd largest crypto trading country after US & Japan & anything related to cryptos happening in that country carries a lot of significance. The recent spate of regulatory crackdown talk & actions against anonymous account holders in South Koreas has caused massive price swings in an already edgy crypto market. Earlier six unnamed banks in South Korea were scrutinized by the Korean Financial Intelligence Unit and the Financial Supervisory Service for their relationship with the country’s bitcoin exchange ecosystem. The BoK has also launched a cryptocurrency task force to explore the technology’s effects on the financial system.
Bank of Canada (BoC) The Bank of Canada (BoC) released an exploration paper last December detailing the implications of creating a state-backed cryptocurrency. It also suggested that Central banks might benefit from issuing electronic versions of fiat currencies, but the benefits would vary depending on whether they did so in an advanced or developing economy. The paper also went on to explore six different supposed benefits to a central bank for issuing a digital currency, but largely dismisses all but three: payments for consumers, financial inclusion and stability.
Reserve Bank of Australia (RBA) The Reserve Bank Governor has talked down the chances of a Government-issued cryptocurrency, despite a massive increase in electronic transactions. Earlier last year it was also reported that RBA was approached by interested startups to create a new digital currency, known as the “DAD” or Digital Australian Dollar. However, in a speech more recently, Dr Philip Lowe said the major cryptocurrencies are not very effective as a way to pay for things, with high transaction costs, including the massive amounts of energy needed to “mine” them & rejected the idea of issuing “DAD”.
Sweden’s Riksbank & Scandinavian countries Riksbank, the world’s oldest central bank has been exploring the option of launching its own digital currency in the form of “e-krona” since November 2016. The central bank says the introduction of an e-krona poses “no major obstacles” to monetary policy. Also because the card-friendly country is already more than comfortable with non-physical financial transactions. It is slated to be released sometime in 2018.
Norway & Netherlands are also actively looking to launch the electronic versions of their fiat currencies & have been experimenting with them. Two years ago the Dutch Central bank created its own cryptocurrency called “DNBcoin” — for internal circulation only — to better understand how it works.
While in Norway — in an environment where the use of cash is decreasing, Norges Bank is looking at possibilities such as individual accounts at the central bank, plastic cards or an app to use electronic currencies for payments.
Denmark, however, has backtracked somewhat on its initial enthusiasm, with Deputy Governor of the Central bank Per Callesen cautioning against central banks offering digital currencies directly to consumers.
Speculative Bunch
Germany: The director Joachim Wuermeling of Germany’s central bank (Bundesbank) believes that bitcoin should be regulated through an international set of rules rather than on a national scale. Bundesbank has been particularly wary of the emergence of Bitcoin and other virtual currencies.
France: Bank of France Governor Francois Villeroy de Galhau said has said recently that Bitcoin is not a currency — and not even a cryptocurrency! He went on to say “It is a speculative asset. Its value and extreme volatility have no economic basis, and they are nobody’s responsibility.” Needless to say he is not a big fan of Bitcoin.
New Zealand: The RBNZ (Reserve Bank of New Zealand) acting governor Grant Spencer has warned that Bitcoin’s runaway gains look like a speculative bubble.
Turkey: Digital currencies may contribute to financial stability if designed well, Turkish Central Bank governor Murat Cetinkaya said in Istanbul.
Brazil: The Banco Central do Brasil sees “no immediate risk for the Brazilian financial system” from cryptocurrencies, but remains alert to the developments in their usage, according to a statement issued last November. Digital Currency Pioneers.
Digital Currency Pioneers
Ecuador: The South American country followed a 2014 wholesale ban on Bitcoin and cryptocurrencies with the issuing of a national cryptocurrency, Dinero Electrónico, in 2015 as part of the country’s monetary laws. The Dinero Electrónico tokens are backed by the assets of Ecuador’s central bank, Banco Central del Equador, and pegged one-to-one to the US dollar, which is Ecuador’s national currency. This South American nation was also the first to roll out a central bank issued and controlled digital currency.
Estonia: Being a tech-friendly country and also the first to store its data on the blockchain, Estonia will issue a currency called “Estcoin”. The estcoins may go on sale in 2018 to raise money for the country’s e-residency program.
Tunisia: The Tunisian government teamed up with the Monetas to issue a blockchain powered digital currency stored in the La Poste Tunisienne app, enabling 3 million unbanked Tunisians to participate economically by making instant payments worth fractions of a Dinar, at almost no fees at all. The Monetas powered La Poste Tunisienne app, is said to allow for the management of official government identification documents.
Senegal: Banque Regionale de Marches and eCurrency Mint, collaborated and released a digital version of the country’s CFA franc in 2017. The blockchain powered eCFA is pegged to the fiat currency value and is stored in e-money wallets.
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Originally published at cryptocurrencyhub.io on January 30, 2018.