Bitcoin, from Curiosity to Household Word

Bitcoin, from Curiosity to Household Word

Bitcoin, from Curiosity to Household Word

$JPM, $BTCUSD

The Bank for International Settlements (BIS) said Monday, that the world’s central banks cannot ignore the growth in cryptocurrencies and may at some point have to consider whether it makes sense for them to issue their own digital currencies,

“Whether or not a central bank should provide a digital alternative to cash is most pressing in countries, such as Sweden, where cash usage is rapidly declining,” the BIS said in its Quarterly review. “But all central banks may eventually have to decide whether issuing retail or wholesale CBCCs makes sense in their own context.”

In making these decisions, institutions will need to take into account of not only privacy issues and efficiency gains in payment systems, but also potential economic, financial and monetary policy repercussions, BIS said.

“In less than a decade, Bitcoin has gone from being an obscure curiosity to a household name,” it said. “While it seems unlikely that bitcoin or its sisters will displace sovereign currencies, they have demonstrated the viability of the underlying blockchain or distributed ledger technology.”

The analysis came at the end of a rough week last week for digital currencies, with JPMorgan Chase & Co (NYSE:JPM) Jamie Dimon calling Bitcoin a “fraud” and China moving to crack down on domestic trading of cryptocurrencies.

But with Bitcoin and others gaining in popularity as payment systems go mobile and investors pour in money, central banks are beginning to delve into them and their underlying blockchain technology, which promises to speed up clearing and settlements.

At the Bank of England (BOE), Mark Carney has cited cryptocurrencies as part of a potential “Revolution” in finance.

To better understand the system, the Dutch central bank has created its own cryptocurrency, albeit for internal use only.

US officials are exploring the matter too, though in March Federal Reserve Governor Jerome Powell said there were “significant policy issues” that needed further study, including vulnerability to cyber-attack, privacy and counterfeiting.

According to the BIS, one option for central banks might be a currency available to the public, with only the central bank able to issue units that would be directly convertible with cash and reserves. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Another question to be resolved would be the question of privacy.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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