By Tim McCausland
Over the last few years, I have written about the rise of blockchain and its monetary stepchild – cryptocurrency. When discussing cryptocurrency with friends and colleagues, they usually say they don’t understand it and wonder if it is really something they should be thinking about. Well, I’ll say it again; it’s time to understand and wonder no more.
Most people have heard of bitcoin and perhaps some know Ethereum and Ripple – the top three cryptocurrencies (by market capitalization). And those folks who use Facebook and follow “The Zuck,” know that the world’s largest social network is dabbling with the idea of its own cryptocurrency, known as Libra. Though there are wide differences in the character, use and proliferation of all these “cryptos” or digital money and potential cryptos, they all share two things in common: they operate on a blockchain distributed ledger system and, they are privately owned.
It’s the “privately owned” commonality that is finally getting the attention of governments around the world. Why? Because sovereign nations control their respective currencies and money supplies, all for various reasons, but the most important, of course, is economic order. People, businesses and institutions need to have some level of confidence in their nation’s central bank to provide stability, confidence and a market for money. Some countries are better at it than others, but the prospect of a private currency gaining market share in an economy offers a virtual limitless number of unknowns. And politicians, central bankers and regular, old bankers hate unknowns.
As reported by the UK’s Guardian publication, Fran Boait, executive director of Positive Money, said policymakers had been slow to realise how much enthusiasm there was for digital money.
“They have been asleep at the wheel over the future of our money system being determined by a small number of banks, payment companies and now tech giants. The rapid decline of cash and threat of private digital currencies like Facebook’s Libra have served as a much-needed wake-up call, but central bankers have a lot of catching up to do. Central banks need to accelerate plans for a central bank digital currency, which would both ensure that people have the choice of a safe public banking option and prevent our monetary system being completely surrendered to unaccountable private interests.”
The central banks of Switzerland, Sweden and the United Kingdom, among others, have begun real efforts to create a framework for sovereign digital currencies to operate, in most instances, hand-in-hand with each nation’s “regular” currency. But, for America, Fed Chair Jerome Powell has stated that the Fed has recognized what other nations are doing, and that it continues to “carefully analyze the costs and benefits of pursuing such an initiative in the U.S.”, concluding that the Fed has “not identified potential material benefits” of designing a cryptocurrency relative to existing central bank tools.
The Federal Reserve System is populated by some very smart people, but, as the saying goes, “You Snooze, You Lose.” Whether you embrace the notion of a cashless, cryptocurrency future or you prefer the feeling of cold, hard cash in your pocket, nothing will stop this advance and we have to hope our policymakers and central bankers are up to the job.
Tim McCausland is the Managing Director of Private Banking for Orange Bank & Trust Company
