Future Of Digital Currencies: Former Buba Head & The FT Get Horribly Muddled
Less clear cut, however, are likely to be arguments over digital currencies issued by central banks. Like cash, which they could eventually replace — but unlike bitcoin — they would be backed by monetary authorities, so they would also act as a store of value as well as widely accepted means of payment. In China, the central bank has said it will develop a digital currency using the blockchain technology behind bitcoin. In Europe, Sweden’s Riksbank published a report in September suggesting there were few obstacles to issuing e-krona. But other central banks have been much more cautious. Jens Weidmann, Mr Weber’s successor as Bundesbank president, argued the focus should instead be on improving existing payment systems. Like the Bundesbank, the Swiss National Bank is not convinced of the need for central bank e-currencies.
The question of infinite versus finite supply was not mentioned. Moving on…
If conventional fiat currencies were genuine stores of value, they should be a haven in times of panic, obviously. Instead, the FT fears that customers could exacerbate bank runs by switching funds out of fiat into digital currencies in a crisis.
There are fears that in times of panic, customers could quickly switch funds out of normal bank accounts and into e-currencies, exacerbating bank runs. Germans and Swiss also remain heavy users of cash - unlike Swedes.
While Weber makes the valid point that digital currencies can reduce the cost of payment services and provide transparency, the FT article articulates the benefits in a surprisingly narrow way.
Mr Weber, however, says central banks are wrong to think it is a case of either traditional cash or e-currencies. Payment patterns evolve, he says, with younger generations more likely to pay via mobiles, independently of banks. If central banks regarded digital currencies as an opportunity, they could “probably provide non-account-related payment services for society in a cheaper and more economic way”.
The advantages would be most apparent in geographically large countries, where cash transport is expensive — such on the African continent. Mr Weber envisages digital currencies not having the anonymity of cash — indeed features in the currency could identify users, so minors could be prevented from buying alcohol, for instance. But the technology would have to be hacker-proof. “It has to be a very secure means of payment.”