These sorts of stories answer the question everyone serious about cryptocurrencies have been asking for years: If cryptos are so good, wouldn't a centrally run alternative just be better, safer...
These sorts of stories answer the question everyone serious about cryptocurrencies have been asking for years:
If cryptos are so good, wouldn't a centrally run alternative just be better, safer and inevitable?
Since yes, then cryptos are obviously a bubble that will be replaced by a centrally run alternative later on.
I assume this line of thinking is why the large institutional companies/businesses haven't bothered to make their own currencies other than as a means of trying to earn quick buck or get publicity.
Why aren't digital currencies run by central banks or like the IMF, UN or similar inevitable? Having a common clearing house in this way with a traceable currency is a key to getting rid of tax avoidance and so on.
You might ask why we don’t all have bank accounts with our country’s central bank, and I think the answer is that central banks don’t want to have to do customer service for many millions of...
You might ask why we don’t all have bank accounts with our country’s central bank, and I think the answer is that central banks don’t want to have to do customer service for many millions of customers, or take the blame when someone has trouble banking. (Though in some countries, post offices provide some financial services.)
Banks aren’t always the most consumer-friendly organizations, particularly when they decide to say “no” for unclear, security-related reasons. But they do have many bank branches with people who are used to dealing with customers of a wide variety of technical and financial sophistication.
I guess digital currency avoids the whole issue by not having customer service? It’s convenient for the issuer that none is expected.
A central bank digital currency could be interesting as a way for foreigners worldwide to be able to hold a currency easily without needing to open a bank account. To do that it would have to actually launch, though, and have lower requirements for opening an account than your typical bank.
Somehow these central bank digital currencies never launch. They research them for a couple years, but nothing ever happens. I would have guessed that Estonia would do one by now.
I like the customer service take, and I think you're right that a currency dodges that in a way that bank accounts can't. It's infrastructure more than service, and that definitely feels to me...
I like the customer service take, and I think you're right that a currency dodges that in a way that bank accounts can't. It's infrastructure more than service, and that definitely feels to me more within a central bank's remit and expertise.
The other interesting thing that comes from holding the keys to your own currency is the ability to transfer it directly from person to person without an intermediary - something that cash has always allowed but more modern systems don't. It has all the pros and cons of cash, of which there are definitely major ones on both sides, but if nothing else I see it as a good hedge against the Visa/Mastercard payments duopoly as cash use dwindles.
One problem is that customer service ends up being provided by apps. Unlike with physical currency, people are not really doing things themselves. They aren't going to write their own apps, and...
One problem is that customer service ends up being provided by apps. Unlike with physical currency, people are not really doing things themselves. They aren't going to write their own apps, and the app vendors aren't likely to provide the kind of support an unsophisticated person needs. Apps from unknown vendors are themselves a security risk; this is as bad as choosing a VPN to trust.
I also don't buy the idea that there's "no intermediary." There are physical computers that run the blockchain, and you don't do transactions without connecting to them. You also need network access, which is provided by an intermediary.
So it's not really like physical cash, which works offline.
Good points, and they definitely highlight the biases I bring to the table! I think a lot of this for me hinges on the conceptual ability to do things, even if the real-world change for most...
Good points, and they definitely highlight the biases I bring to the table! I think a lot of this for me hinges on the conceptual ability to do things, even if the real-world change for most people is minimal.
I'd expect the existing banks to just roll digital currency support into their apps, for example, and that'd serve most people absolutely fine - but suddenly it means a new competitor can enter the space directly, using the system on equal footing, without having to either start a whole bank or build a parallel transfer system like PayPal or Cash App. It means that people in countries with less stable or trustworthy banking systems do have alternatives that put the control (and associated risk) in their hands for transactions that can't easily be done face to face in cash.
Choice of VPN is a good analogy, I think. Most people just don't bother, they trust their big-brand ISP (or bank, in this case) and that's that - but the infrastructure is there to make an alternative choice or just to run your own from scratch if you have the ability. I think that's valuable, but it does bring inherent risks; I'd argue the risks aren't greater than those of choosing who to trust with your cash, but I'll readily admit they're less intuitive to the average person.
As for connectivity as an intermediary: also fair, but tangential to what I meant. No financial intermediary would be more accurate for me to say. It'd depend on implementation (does the central bank have total control, do they kick it off and then allow it to be decentralised, etc.), but the core of what I was going for is that you no longer need a third party to hand the money between you and someone else. That opens up Visa and Mastercard to competition in the commercial space, allows fast and free transfers in countries where banks don't provide that, generally moves the control of digital transfers from a proprietary system to an open one.
From a purely financial standpoint, I think most of the properties of cash are there - but it's fair to say not all. From a technical standpoint, I'd say the closer analogy is perhaps the move from ARPANET to the internet.
Competition tends to sounds good to people who learned about economics, but it matters a lot what kind of competition it is. There is a lot of competition to defraud elderly people, for example....
Competition tends to sounds good to people who learned about economics, but it matters a lot what kind of competition it is. There is a lot of competition to defraud elderly people, for example. There was competition to sell people swampland in Florida, and to sell time shares. There is also competition between crypto exchanges and between cryptocurrencies, but most of the competitors are pretty shady.
To get the good kind of competition you need ways of keeping the scammers from taking advantage and ways for customers to recognize a bad deal, or it becomes a market for lemons. In some cases the consumers themselves can judge which products are good, and the consequences of getting it wrong aren’t too bad. I don’t think this is true of bank accounts, though, unless you are careful to only keep a small amount of money in them.
(It’s also somewhat dubious for software. What would it take for you to trust a new browser from an unknown vendor? What signals do you have that they are as good at security as they need to be?)
The regulation of banks means that they mostly only compete to take people’s money in tricky but legal ways (unexpected fees for example), though there are sometimes illegal practices that result in class-action lawsuits and giant settlements. This is somewhat better than what we see with cryptocurrencies. Coinbase is the only company that seems somewhat trustworthy to me in a mainstream way, but there are still horror stories about people not being able to get their money out, so I’m somewhat skeptical of them too.
So sure, competition might be okay in theory, but the proof is seeing solid, trustworthy companies arise that people are happy to do business with. Until that happens it’s only a theoretical advantage.
Looking at it that way, the rise of Visa and Mastercard are a success story for competition because they pretty much do what people want them to and offer pretty good consumer protection, at least for people who can use them responsibly. (Though plenty of people get in trouble by running up credit card debt.)
Exactly! That's the point of viewing a World Bank, UN, IMF or EU-hosted digital currency just the same as any physical currency. There are many benefits that you have over physical currencies...
I guess digital currency avoids the whole issue by not having customer service? It’s convenient for the issuer that none is expected.
Exactly!
That's the point of viewing a World Bank, UN, IMF or EU-hosted digital currency just the same as any physical currency. There are many benefits that you have over physical currencies though.
By acting as a clearing house for the currencies, the public's record of transactions using the currency is entirely complete: Perfect tax records, perfect histories of who paid whom what and when. As they say: Follow the money.
Just as governments who own/run currencies today don't run banks with bank accounts for customers, there are many ways of running a digital currency and the clearing house with full records, but without running the customer-side of things.
The world of money is very conservative and cautious.
I expect in the estimation of many central banks who've looked into digital currencies have either concluded that the technology isn't mature yet, that they won't get the political backing/time/priority needed to make this large structural change with society, or they simply know they haven't been allocated the resources to implement now.
Other countries already have alternate solutions to many of the issues.
To use Norway as an example: All the Norwegian banks collaboratively run a clearing house. This means cross-bank payments are usually effectuated in less than a handful of seconds. Government also has perfect access to all inter-Norwegian bank transfers through the joint clearing house.
The impetus for implementing a digital Norwegian currency is therefore greatly reduced. The benefits would be if a currency what it'd take to get a much larger geography/economy ( like The EU, or several northern European countries?) to clear currency exchanges in the same clearing house, not by having a "digital Norwegian Kroner" in some form or other.
That low-hanging fruit was plucked more than 15 years ago.
Another conclusion could simply be that central banks so far just haven't found a technical solution they'll think is secure enough.
Imagine North Korea or China hacking your entire currency, or the US holding it ransom as part of sanctions.
Don’t we already have that? A central bank digital currency can’t (or shouldn’t) be immutable in my opinion, so I’m not sure what the blockchain would bring that the existing infrastructure can’t....
Don’t we already have that?
A central bank digital currency can’t (or shouldn’t) be immutable in my opinion, so I’m not sure what the blockchain would bring that the existing infrastructure can’t.
If we’re just talking about making the system entirely digital, ie dropping cash, I think there are pros and cons but not sure I’m convinced either way.
These sorts of stories answer the question everyone serious about cryptocurrencies have been asking for years:
Since yes, then cryptos are obviously a bubble that will be replaced by a centrally run alternative later on.
I assume this line of thinking is why the large institutional companies/businesses haven't bothered to make their own currencies other than as a means of trying to earn quick buck or get publicity.
Why aren't digital currencies run by central banks or like the IMF, UN or similar inevitable? Having a common clearing house in this way with a traceable currency is a key to getting rid of tax avoidance and so on.
You might ask why we don’t all have bank accounts with our country’s central bank, and I think the answer is that central banks don’t want to have to do customer service for many millions of customers, or take the blame when someone has trouble banking. (Though in some countries, post offices provide some financial services.)
Banks aren’t always the most consumer-friendly organizations, particularly when they decide to say “no” for unclear, security-related reasons. But they do have many bank branches with people who are used to dealing with customers of a wide variety of technical and financial sophistication.
I guess digital currency avoids the whole issue by not having customer service? It’s convenient for the issuer that none is expected.
A central bank digital currency could be interesting as a way for foreigners worldwide to be able to hold a currency easily without needing to open a bank account. To do that it would have to actually launch, though, and have lower requirements for opening an account than your typical bank.
Somehow these central bank digital currencies never launch. They research them for a couple years, but nothing ever happens. I would have guessed that Estonia would do one by now.
I like the customer service take, and I think you're right that a currency dodges that in a way that bank accounts can't. It's infrastructure more than service, and that definitely feels to me more within a central bank's remit and expertise.
The other interesting thing that comes from holding the keys to your own currency is the ability to transfer it directly from person to person without an intermediary - something that cash has always allowed but more modern systems don't. It has all the pros and cons of cash, of which there are definitely major ones on both sides, but if nothing else I see it as a good hedge against the Visa/Mastercard payments duopoly as cash use dwindles.
One problem is that customer service ends up being provided by apps. Unlike with physical currency, people are not really doing things themselves. They aren't going to write their own apps, and the app vendors aren't likely to provide the kind of support an unsophisticated person needs. Apps from unknown vendors are themselves a security risk; this is as bad as choosing a VPN to trust.
I also don't buy the idea that there's "no intermediary." There are physical computers that run the blockchain, and you don't do transactions without connecting to them. You also need network access, which is provided by an intermediary.
So it's not really like physical cash, which works offline.
Good points, and they definitely highlight the biases I bring to the table! I think a lot of this for me hinges on the conceptual ability to do things, even if the real-world change for most people is minimal.
I'd expect the existing banks to just roll digital currency support into their apps, for example, and that'd serve most people absolutely fine - but suddenly it means a new competitor can enter the space directly, using the system on equal footing, without having to either start a whole bank or build a parallel transfer system like PayPal or Cash App. It means that people in countries with less stable or trustworthy banking systems do have alternatives that put the control (and associated risk) in their hands for transactions that can't easily be done face to face in cash.
Choice of VPN is a good analogy, I think. Most people just don't bother, they trust their big-brand ISP (or bank, in this case) and that's that - but the infrastructure is there to make an alternative choice or just to run your own from scratch if you have the ability. I think that's valuable, but it does bring inherent risks; I'd argue the risks aren't greater than those of choosing who to trust with your cash, but I'll readily admit they're less intuitive to the average person.
As for connectivity as an intermediary: also fair, but tangential to what I meant. No financial intermediary would be more accurate for me to say. It'd depend on implementation (does the central bank have total control, do they kick it off and then allow it to be decentralised, etc.), but the core of what I was going for is that you no longer need a third party to hand the money between you and someone else. That opens up Visa and Mastercard to competition in the commercial space, allows fast and free transfers in countries where banks don't provide that, generally moves the control of digital transfers from a proprietary system to an open one.
From a purely financial standpoint, I think most of the properties of cash are there - but it's fair to say not all. From a technical standpoint, I'd say the closer analogy is perhaps the move from ARPANET to the internet.
Competition tends to sounds good to people who learned about economics, but it matters a lot what kind of competition it is. There is a lot of competition to defraud elderly people, for example. There was competition to sell people swampland in Florida, and to sell time shares. There is also competition between crypto exchanges and between cryptocurrencies, but most of the competitors are pretty shady.
To get the good kind of competition you need ways of keeping the scammers from taking advantage and ways for customers to recognize a bad deal, or it becomes a market for lemons. In some cases the consumers themselves can judge which products are good, and the consequences of getting it wrong aren’t too bad. I don’t think this is true of bank accounts, though, unless you are careful to only keep a small amount of money in them.
(It’s also somewhat dubious for software. What would it take for you to trust a new browser from an unknown vendor? What signals do you have that they are as good at security as they need to be?)
The regulation of banks means that they mostly only compete to take people’s money in tricky but legal ways (unexpected fees for example), though there are sometimes illegal practices that result in class-action lawsuits and giant settlements. This is somewhat better than what we see with cryptocurrencies. Coinbase is the only company that seems somewhat trustworthy to me in a mainstream way, but there are still horror stories about people not being able to get their money out, so I’m somewhat skeptical of them too.
So sure, competition might be okay in theory, but the proof is seeing solid, trustworthy companies arise that people are happy to do business with. Until that happens it’s only a theoretical advantage.
Looking at it that way, the rise of Visa and Mastercard are a success story for competition because they pretty much do what people want them to and offer pretty good consumer protection, at least for people who can use them responsibly. (Though plenty of people get in trouble by running up credit card debt.)
Exactly!
That's the point of viewing a World Bank, UN, IMF or EU-hosted digital currency just the same as any physical currency. There are many benefits that you have over physical currencies though.
By acting as a clearing house for the currencies, the public's record of transactions using the currency is entirely complete: Perfect tax records, perfect histories of who paid whom what and when. As they say: Follow the money.
Just as governments who own/run currencies today don't run banks with bank accounts for customers, there are many ways of running a digital currency and the clearing house with full records, but without running the customer-side of things.
The world of money is very conservative and cautious.
I expect in the estimation of many central banks who've looked into digital currencies have either concluded that the technology isn't mature yet, that they won't get the political backing/time/priority needed to make this large structural change with society, or they simply know they haven't been allocated the resources to implement now.
Other countries already have alternate solutions to many of the issues.
To use Norway as an example: All the Norwegian banks collaboratively run a clearing house. This means cross-bank payments are usually effectuated in less than a handful of seconds. Government also has perfect access to all inter-Norwegian bank transfers through the joint clearing house.
The impetus for implementing a digital Norwegian currency is therefore greatly reduced. The benefits would be if a currency what it'd take to get a much larger geography/economy ( like The EU, or several northern European countries?) to clear currency exchanges in the same clearing house, not by having a "digital Norwegian Kroner" in some form or other.
That low-hanging fruit was plucked more than 15 years ago.
Another conclusion could simply be that central banks so far just haven't found a technical solution they'll think is secure enough.
Imagine North Korea or China hacking your entire currency, or the US holding it ransom as part of sanctions.
A distributed and fault tolerant blockchain is a great fit for regional government offices. No need for dedicated datacenters, I would think.
Don’t we already have that?
A central bank digital currency can’t (or shouldn’t) be immutable in my opinion, so I’m not sure what the blockchain would bring that the existing infrastructure can’t.
If we’re just talking about making the system entirely digital, ie dropping cash, I think there are pros and cons but not sure I’m convinced either way.