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Central banks and digital currencies? It’s all a big bluff

The untrained eye will notice that the world’s leading central banks seem to be on their way, and soon, to create their own cryptocurrencies.

Quite a few reasons why banks would be interested in the relatively new world of digital currencies. Let’s just take the Facebook Libra project, which hides the potential to change the monetary system entirely.

But there are also enough reasons for the masters of the monetary universe, like the Bank of England’s Mark Carney or the European Central Bank’s Christine Lagarde, to persuade commercial banks to create their own version of Libra.

Alas, listening carefully to the central banks, it becomes clear very quickly that their intentions for launching cryptocurrencies are rather a big bluff.

There is no doubt that the idea of ​​Libra has awakened the banks. They worry that the risks posed by such a project are serious. Risks threatening the overall monetary system and financial stability. Such as consumer protection, mechanism of money transactions, money laundering, terrorist financing and protection of personal data.

But the biggest worry about Libra is the potential to divert central banks’ core power – to control cash flows into the economy.

In the face of such concerns and risks, bankers treat the idea with caution. Lagarde said the ECB is conducting a joint research project called Stella with the Bank of Japan to explore the potential of digital currencies. Other banks are ahead with their own projects such as Riksbank, SNB and PBoC.

Lagard even introduced the idea of ​​a digital euro, which would allow anyone in the Eurozone to have a direct account with the ECB. This way, they will be able to use the money of the central bank for their daily transactions. However, this can have dramatic consequences.

Bankers from commercial banks would not like this concept at all. If this scenario ever happens, then in the next financial crisis, people will have the opportunity to move their money from the banks and transform it into a digital currency backed by the central bank. A similar run to a safe haven occurred during the last crisis when strong banks collected withdrawals from weaker ones. Remember Northern Rock? But to what extent central banks can be considered asylums …

Carney in his August speech even went further, offering a new, synthetic currency issued by a network of central banks that would gradually displace the dominant US dollar in international transactions.

What is really happening? ECB insiders say there is no team working on the digital currency, and that it has any intention of doing so anytime soon. More of these comments appear to have been designed to irritate private sector banks to improve the inefficient, costly and time consuming payment system of the world.

There is an initiative of 20 major European banks including BNP Paribas and Deutsche Bank. The idea is to create a new digital payment system under the nickname Pan European Payment System Initiative or PEPSI. The goal here is to achieve instant cashless payment through European competitors to US ApplePay and Chinese Alipay.

In the midst of all the talk about how central banks will make digital currency, many bankers themselves are hoping that private banks will be able to come up with another solution that eliminates the need for digital currency.

And PEPSI itself is under the impact of the CPC in Brussels for developing in too narrow a circle. The question that arises is: How much longer will Brussels be patient?

Source: Financial Times


 Trader Martin Nikolov


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