Growing interest in official crypto currencies among central banks
Although interest in launching official digital currencies in the future is growing significantly among central banks around the globe, according to a survey conducted by the Basel-based Bank for International Settlements (BIS), the results obtained from a total of 65 central banks around the globe nevertheless indicate that such plans and projects still appear to be in an early stage. A snapshot.
A recent survey by the Basel-based Bank for International Settlements (BIS) showed that central banks around the globe continued to push ahead with plans to introduce digital currencies.
Ultimately, these efforts are just a final step in an attempt to overhaul the increasingly fragile fiat money system. Experts, meanwhile, warn that the launch of official digital currencies would most likely be accompanied by a sharp rise in inflation.
The dangers, given a growing popularity of largely unregulated cryptocurrencies such as Bitcoin, Ethereum & Co. as well as efforts among major tech corporations such as Facebook to launch their own digital currencies such as Diem, formerly Libra, in terms of continued unrestrained money creation by central banks, appear to have long been recognized among commercial commercial and central banks.
BIS Director General Agustin Carstens, for example, made the point four years ago that Bitcoin was a “combination of a bubble, a Ponzi scheme, as well as an environmental disaster.” If more institutional investors were also interested in investing or speculating in the Bitcoin universe, he said, it would lead to a threat to maintaining stability in the international financial markets.
A little criticism of this statement is certainly allowed at this point, because when viewed in the light of paper currencies issued by central banks, it does indeed seem to be the biggest bubble of all bubbles in the international financial system at the moment.
Whether Bitcoin and other cryptocurrencies are a Ponzi scheme or not is a moot point and will not be discussed in detail here. But those who sit in glass houses should not throw stones. After all, it is the central banks themselves that have aided and abetted, on the basis of their own monetary policy, to pump up a mega-bubble in almost all important segments of the capital markets.
It should therefore be noted that the greatest dangers for the international financial system emanate from the unrestrained generation of money by central banks, for which representatives of the central banks do not want to assume any responsibility. On the contrary, Carstens’ statements turn the fox into the gardener, as if Bitcoin were not an escape vehicle from the existing and highly fragile fiat money system.
Central bank officials should ask themselves how far they will go with their zero and negative interest rates in light of the fact that close to twenty trillion U.S. dollars in the form of outstanding bonds and notes are now yielding negative interest.
Whether the search for a scapegoat like Bitcoin & Co. for one’s own failures will prove helpful in the fight to preserve and stabilize the existing financial system remains to be seen – with or without the introduction of digital currencies to be officially issued by central banks.
Rather, one could also speak of a mere shifting of the problem. Referring to the Reuters news agency, the survey conducted among 65 central banks had the result that 86 percent of the survey participants were currently conducting studies on the advantages and disadvantages of introducing official digital currencies.
The implementation of such projects is likely to be some years away in many parts of the world, as the European Central Bank, for example, has recently stated on several occasions. The People’s Republic of China is the furthest along on a global level with regard to such plans.
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The survey result also suggests that central banks in emerging and developing countries are pursuing such plans to introduce official digital currencies to a greater extent than the classic industrialized nations. This could change over time, of course, as central banks in the developed world give the impression of being quite hot on the heels of exercising control over a digital currency based on blockchain technology in each case in the future, despite everything.
This is especially true from the perspective of subsequent fiscal and stimulus packages in the future, the adoption of which is not likely to abate anytime soon. Rather, such “fiscal stimulus” could and now threatens to become a common means of supporting economies and financial markets around the world, even though it can be mathematically determined that each additional unit of currency pumped in is accompanied by rapidly declining “utility” over time.
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Translated, this means that each additional unit of currency pumped in contributes to ever-decreasing economic growth and eventually begins to weigh on the stability of each fiat paper currency. From today’s perspective, this point has long since been reached.
This very development is already increasingly reflected in the markets for cryptocurrencies such as Bitcoin & Co. as well as precious metals such as gold and silver. Investors are desperately looking for investment alternatives to remaining in the universe of the fiat money system.
A look at America shows that the Federal Reserve has also long been working on distributing digital U.S. dollars directly to businesses and consumers at the click of a mouse in the future, which could bypass the U.S. Treasury and the Washington Congress through the Federal Reserve.
To put such plans into action, it may take the outbreak of another financial crisis to then set in motion a new wave of system reflation on that basis when the time comes. Let us return to the BIS survey.
BIS survey shows mixed picture in short and medium term
One-fifth of all central banks in industrialized nations surveyed by the BIS said that the issuance of official digital currencies was possible in the short to medium term.
On this topic, the European Central Bank said in September 2020 that the potential issuance of an official digital currency in the euro area would NOT replace the circulation of cash there, but only complement it.
Meanwhile, the People’s Bank of China expanded its field trial of a digital renminbi to the country’s three largest urban centers last year. After all, nearly four hundred million people live in the regions affected by this.
The BIS survey concluded that more than a quarter of the central banks surveyed did not currently have the authority to issue official digital currencies themselves. A proportion of 48 percent, they said, were not sure at this stage whether or not there would be an eventual launch of an official digital currency in their respective countries.
Around sixty percent of the survey participants stated that the launch of an official digital currency is unlikely in the short to medium term in their respective nations. Nonetheless, studies and research on the subject would continue, with the aim of eventually entering the stage of “practical experimentation.”
To be sure, central banks such as the ECB are currently still insisting that a potential introduction of official digital currencies – at least in the euro area – would not be accompanied by an abolition of cash in circulation.
It remains to be seen how things will look if a new global financial crisis should break out, which could serve as a springboard for the implementation of more far-reaching plans, but does not necessarily have to.
The fact that massive resistance would form in large sections of society against a cash abolition is already becoming apparent, even though nothing has happened yet. For example, the Austrian central bank already launched a campaign in December explicitly drawing attention to the advantages of cash. In the euro zone, it is the leading central bank that explicitly advocates the preservation of cash.
As in the case of all innovations, it will therefore depend on how far acceptance in favor of innovations and “innovations” will extend among the population, and how divided the establishment itself will prove to be when it comes to future questions of how to shape the desired innovations. The rest remains to be seen.