Central banks are again cryptocrypting

The Big Four central banks – the US Federal Reserve, the European Central Bank (ECB, the Bank of Japan (BOJ)) and the Bank of England (BOE) – are arguably the most powerful companies in the world.

The Big Four decides on interest rates that affect more than $ 41 trillion in GDP. And they control or influence more than $ 5 trillion in cash payments every day .

Given this insane, highly centralized power that decides the fate of the world, one would at least assume that they know what they are talking about. And Artiet’s authority extends to cryptocurrencies … which they curse and scatter:

• Even this week, for example, the Basel Committee – made up of 60 central banks backed by the Bank for International Settlements (BIS) – warned that the emerging cryptographic industry could “bring financial stability problems and increase the risks banks face”.
• The head of the BIS – considered the “central bank of central banks” – said he was “concerned” about advances in cryptographic technology. He warns “young people” not to “try to invent currencies”.
• Other central bankers have repeatedly stated that “there is no point” in creating cryptocurrencies. After all, “Traditional money works well.”

Many Wall Street experts agree with this view. Whenever a conversation turns to Shared Ledger Technology (DLT), they get angry, upset, or just roll their eyes.

At the other extreme, proponents of cryptocurrency are still talking about Bitcoin, or some other crypto, rising soon from the ashes … replacing the US dollar as the world’s reserve currency … and conquering the financial world.

My position: Both are half right and half are not.

Let me suggest an alternative scenario – one that better reflects the history of money , the current state of affairs and the most likely future for society.

First of all, it should not be forgotten that central banks:

• Helped create a major real estate bubble in the middle of the first decade of the new millennium
• There was an unexpected real estate crash and debt crisis in 2007-2008
• Violated all the rules of monetary policy by printing new money for eight years in a row
• And now, without escape, they are trapped in a new bubble of money that they themselves have created.

This series of mistakes does not give them much right to take an alternative position when it comes to alternative solutions such as cryptocurrencies.

Second, the fact that while some central banks are keeping a large arc away from the crypt cannot be overcome, other central banks have already begun research and development of their own crypts.

The People’s Bank of China (PBOC) is hastily filing patent applications to create something that could become the first major centrally controlled, officially authorized version of the cryptocurrency.

Governments in smaller countries – such as Sweden, Rwanda and even South Korea – have turned to development teams for promising projects such as Cardano, Stellar and IOTA. And these developers are happy to show them how to bring DLT into their day-to-day operations.

It is safe to say that the banks with the most far-reaching eyes in the world have begun to acknowledge the obvious.

Instead of trying to stem the tide of DLT innovation, they’re looking for ways to surf it.

Of course, their goals are very different from those of most crypto visionaries. For people and instead of decentralized money created by people, they mainly want technological innovation in the money issued by governments.

They want to keep all the current power, but to exercise it better and more securely.

Instead of pursuing money launderers and their banknote-filled suitcases, these central bankers are now dreaming of replacing cash with digital money that they can better control.

And in order to win over crypt launderers, hackers and spies, they dream of extinguishing crypts like Bitcon with their own government-controlled digital currency.

It is not yet clear how far they will go. But the most likely scenario is:

1. Central banks are making some progress with their own versions of digital money.

I wouldn’t really call them “cryptocurrencies” because they’re going to lack the basic features that define cryptocurrencies. They will not be decentralized. They will not be unlicensed systems. They will not be censored. It will basically be a digital common currency.

At the same time…

2. Free and open DLT is also evolving, but in a different direction.

It doesn’t have to replace a regular currency to be successful! Instead, it is more likely that the two options for digital money will coexist.

How? The answer lies in the recent history of news, media and publishing.

The confusion between news coverage and print media in the Internet age provides a good comparison to what I see in the future.

Before the Internet, the flow of information was dominated by traditional news organizations and print media. They had a very strong influence on what, how and when something reached the public.

Small, independent news organizations and publishers rarely went beyond their niche markets. Some individuals tried to find an audience by publishing family radios or books themselves. But their competitiveness was practically close to zero.

Then came the World Wide Web and two things happened:

First, newspapers, magazines, and all books faced a choice: go digital or die out. Broadcasting had to do the same in the end. But none of them went first.

Instead, the newcomers took the lead, starting their lives as online platforms, webcasts and social media.

There was a need to sort out the mass of information that came from millions of sources. That’s how Google was born.

Users wanted to share personal information with their friends, family and the general public. That’s how Facebook, Twitter, WeChat and Line started.

Online shopping, once considered a ridiculous dream, grew exponentially. Amazon became the world’s largest retailer without opening a single store.

In just a few short years, people all over the world – who had no access to libraries and education before, could not express their opinions and could not get many goods – saw doors that did not exist before.

Today, two worlds – traditional and digital – coexist:

• Great classic makers who were late or unwilling to adopt new technology, and …
• Small, innovative players who boldly entered a new world and created their own bustling parallel industries.

In the future, the first of them will start to shrink and fall behind – like radio after the spread of television.

But the two should continue to live together for a few more decades.

This pattern is similar to the future I envisage for central banks and cryptocurrencies:

• Central banks are looking for the best in cryptocurrency technology. They choose exactly the aspects they like. They shall adapt and put into service only those parts which are compatible with their purpose of maintaining control. It is not yet clear whether this venture will be successful or not. But they will definitely try.

At the same time…

• Cryptographic money developers and sponsors are leading the attack and creating their own world, the Smart Economy of the future. No banks and no payment service companies … decentralized currency exchanges … decentralized markets for stocks, bonds, commodities, real estate and collectibles … not to mention travel, accommodation, the job market, the dating world and more.

Suddenly, in just a few years, people all over the world – who previously had no opportunity to borrow, raise or even transfer money … who had no hope of starting their own business … who did not have the opportunity to buy or sell services internationally – have opportunity for the first time.

In the future, old, traditional models will begin to shrink and fall behind. But the two should continue to live together for a few more decades.

I think this is the most likely scenario. But whether I’m largely correct or wrong, the fact remains that open shared ledger technology is completely changing the world of finance and payments.

And it does so in the same way that the Internet has reshaped the worlds of media, publishing, and access to information.

It does not matter how long and how vigorously central banks try to defend the status quo – the rapid development of digital currency, cryptocurrencies and DLT applications is unstoppable.

Another problem that traditional banks contributed to: The trillions of dollars in money that have been circulated by world governments to incredible, unpaid debts without ever weighing the consequences.

The best,

Juan

Article – Weiss Ratings

Translation: Lucreds Plus OÜ