A recent paper by two senior central bankers in Europe suggests that the technology underlying bitcoin could serve as the catalyst for change in the global money and payments infrastructure.
Entitled “The Evolution of Central Banks: A Practitioner’s Perspective” — and co-written by Bank of England chief economist Andrew G. Haldane and Jan F. Qvigstad, executive director of Norges Bank, Norway’s central bank, the paper covers the evolution of central banking and the challenges that have arisen in the era of digitized monies.
Perhaps most notably, the authors reject the idea that decentralized digital currencies have a future, owing to price volatility and the somewhat negative public perception of bitcoin.
Instead, they posit that central banks could issue their own digital currencies that would benefit from the institutional backing of a central bank. However, the paper acknowledges the transformative role that bitcoin is currently playing.
The authors write:
“If [bitcoin] proves to be robust, it would be an important step forward in thinking about how trust in money is created and sustained and hence the future of money and payments.”
The authors contrast the opposing viewpoints on digital currency. On the one hand, they say monetary economists have largely dismissed bitcoin as a failed experiment in “private monies”, while technology enthusiasts have argued that bitcoin will revolutionize the way people pay and think about value.
Though acknowledging the strengths of decentralized digital currencies like bitcoin, Haldane and Qvigstad say that they are “unlikely” to reshape the global payments infrastructure, writing:
“For a variety of reasons, it seems unlikely that bitcoin itself will change the landscape for money and payments. But, the technology underlying bitcoin perhaps could.”
Rather, the authors point to companies like PayPal and Google as models for how improvements can be made to the world’s payments structures without introducing radical new elements
Central banking to prosper
Haldane and Qvigstad dismiss the notion that decentralized digital currencies will mark the end of central banking, calling such a viewpoint “overly pessimistic”.
Comparing the introduction of digital currencies to the ascent of gold for use in banking, the authors say that central banks worldwide could adopt bitcoin-like technologies. Such a move, the report states, would constitute “a next evolutionary step in money issuance”.
Finally, Haldane and Qvigstad say that central banks could benefit from the technology even if they choose not to integrate digital currencies in the near-time, writing:
“Central banks have never been technological first-movers. But, the game of money and credit are repeated ones. And in repeated games it is usually the last-mover that matters most.”
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