In researching another topic we stumbled across a report from the Reserve Bank of New Zealand (RBNZ) on cryptocurrencies. We missed it back in November. It was titled: Crypto-currencies – An introduction to not-so-funny moneys
It’s actually not a bad primer on cryptocurrencies for the uninitiated.
The conclusion indicates that perhaps the RBNZ is not taking cryptocurrencies all that seriously where they say:
“…central banks do not presently view crypto-currencies as a material threat. Since crypto-currencies are not well-adapted to the provision of borrowing and lending, we also foresee an enduring role for traditional financial intermediaries.”
Here is their full conclusion:
….While crypto-currencies are growing in popularity, they currently facilitate a very small proportion of transactions. Because crypto-currencies intermediate such a small proportion of transactions, central banks do not presently view crypto-currencies as a material threat. Since crypto-currencies are not well-adapted to the provision of borrowing and lending, we also foresee an enduring role for traditional financial intermediaries.
Crypto-currencies and blockchain technology could well become an important part of global payment systems, but wide-scale adoption will depend on competition from alternative transaction technologies, and on regulation to provide users with security. Crypto-currencies will also need to address technical, scalability issues if they wish to intermediate the volume of transactions undertaken globally.
We conclude that all crypto-currencies are experimental in nature and users face material risks by transacting with them or by holding significant crypto-currency balances. Individual crypto-currencies may be more Betamax than VHS, and more MySpace than Facebook. Even if some of the constructs are enduring, such as distributed ledgers and the use of cryptography, specific crypto-currencies may be supplanted by competing transaction technologies. We close with a Latin expression much-beloved by contract lawyers and economists alike – caveat emptor – buyer beware.
RBNZ Cryptocurrency in the Pipeline?
So for the most part there was nothing too earth shattering in the report.
However we did notice an interesting couple of lines immediately before the reports conclusion (emphasis added is ours).
“The Reserve Bank of New Zealand retains a monopoly on issuing NZD notes and coins that are legal tender in New Zealand.52 The impact of currency substitutes has become an important issue for the Reserve Bank of New Zealand, as it develops its strategic plans for future currency issuance.
Work is currently under-way to assess the future demand for New Zealand fiat currency and to consider whether it would be feasible for the Reserve Bank to replace the physical currency that currently circulates with a digital alternative. Over time, analysis associated with this project will filter through into the public domain.”
The bolded excerpt above indicates the RBNZ may well head down a similar path to other central banks globally.
That being, a move to do away with physical cash and replace it with a digital alternative.
What Are Other Central Banks Views on Cryptocurrencies?
The below Bloomberg article lists the views on various central banks on cryptocurrencies. While varying quite widely, the common theme is one of warnings. A few other central banks are actively looking into issuing their own digital currencies. The RBNZ stance is also covered in the article.
Which Central Banks are Already Planning Their Own Cryptocurrencies?
The RBNZ cryptocurrency plans look to be a fair way behind some other central banks though. Some of which are already in the process of launching their own digital currency trial balloons.
The Russian Central Bank is looking into the possibility of a “Crypto-Ruble”. Although latest reports are that has been delayed. Source.
The Venezuelan government is aiming to release the Petro. A cryptocurrency of sorts where each unit is intended to be backed by a barrel of oil.
They’re not the only ones:
“Russia’s central bank plans to talk to countries including Brazil, China, India and the five former Soviet republics about creating a supra-cryptocurrency that could cover countries with 40 percent of the world’s population. People’s Bank of China Deputy Governor Fan Yifei wrote an article broaching the possibility of a digital currency it would issue with Chinese commercial institutions. In Sweden, where use of cash is vanishing, the central bank is investigating issuing its own digital currency, the E-krona, out of concern that widespread use of other virtual currencies controlled by private actors could harm competitiveness.”
But Dubai took the pole position on government cryptocurrencies, by recently launching emCash. emCash would be officially used and accepted for Government and Non Government services in Dubai. Source.
The Real Reasons For Going Cashless
We’ve been reporting on this trend towards going cashless for many years. As was recently picked up on in the Stuff.co.nz website – see: We’re “in the News”: Downside of Going Cashless
Of course the real reasons for going cashless is not that it is more efficient, cheaper, increases bank deposits, or makes it harder for drug dealers.
What are they then?
The war on cash is being waged because it allows the government to do a number of things:
- Track and tax every payment you make or receive – there is no “cash economy”, no “cash jobs”
- Freeze deposits and then bail-in deposits in case of a failing bank – see here for more on what happens to your deposits in a bank failure in New Zealand
- Enact negative interest rates without people escaping to cash
- No bank runs – Once all money is digital, there can’t be a run on a bank anymore. You won’t be able to remove your money if you see it coming in advance.
For more on the war on cash see: War on Cash: Implications for New Zealand
What Does the Future Hold for Central Banks and Cryptocurrencies?
Any central bank or government initiated cryptocurrency is likely to be put in place for the same reasons listed above. It will be about cementing control and tracking payments.
The banking industry is one of the last industries to be disrupted, so is ripe for major changes to occur.
However the world faces a battle between even more of the centralisation that we currently have – and the complete opposite. De-centralised non government issued money.
We hope the de-centralised or private money side wins out. But the control of money and finance is unlikely to be given up without a heck of a fight.
For more on bitcoin check out: How to Buy Gold and Silver with Bitcoin