Here is a link to a recent speech by Carolyn Wilkins. She is a Senior Deputy Governor of the Bank of Canada. This speech contains some technical lingo, but has some key points related to what we cover here in it. Below I have selected some key quotes to discuss.
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Considering alternative futures
"Innovation doesn't stop with simply adapting our theoretical frameworks and gathering information on the world as we see it today. We must also challenge our thinking by contemplating alternative futures.
The international monetary system could look completely different 20 years from now. China is increasingly opening its financial markets and liberalizing capital flows with the rest of world. While this is clearly positive for the global economy in the long run, this is a huge change and the transition could be bumpy at times. That means we need to think about how the world financial system will evolve and what Canada's place in it will be. Will the renminbi become a reserve currency? How would that affect the demand for other reserve currencies, including Canadian-dollar assets?
Global and domestic payment systems - the backbone of the financial system - could also look completely different. Technology is advancing and new players like PayPal and Apple Pay are competing with the traditional ones. The Bank will help lay the groundwork for the next generation of Canada's payment systems.12
Then there are disruptive technologies, such as the distributed ledger that's at the heart of Bitcoin, or peer-to-peer lending facilities like the Lending Club. These developments are pushing more and more financial activity outside the traditional financial sector. The sharing economy is upending entire industries. Here, I'm thinking about things like peer-to-peer home rental services such as VRBO and mediated services such as Uber.
These types of trends raise questions for the Bank. Consider a cashless society where everyone uses e-money, which is monetary value stored electronically and not linked to a bank account. If this money were denominated in Canadian dollars, who should issue it? Who should earn the seigniorage?13 The central bank, as it does today, or the private sector? What would the financial system look like in each case? The Bank needs to consider all these questions. Cash is a public good that many people still prefer, especially for smaller transactions.14
As we think about alternative futures, we have to envision a world in which people mostly use e-money, perhaps even one that's not denominated in a national currency, such as Bitcoin. This would create a new dynamic in the global monetary order, one in which central banks would struggle to implement monetary policy. And, central banks couldn't act as lenders of last resort as they do for their own currencies. This means that households and businesses could suffer important losses if such an e-money were to crash. We need to anticipate this and manage the risks and benefits that could arise from the broader adoption of e-money.
The Bank will explore these and many other trends over the course of our three-year corporate plan. To do this, we're expanding the range of techniques we use for analysis. For example, we've begun to capitalize on "big data" to do things that aren't possible with traditional economic statistics. Prices collected from retail websites can be used to study pricing behaviour. Social media used by people of all ages to express likes and dislikes may become a vital source of data to understand the perception and credibility of monetary policy. We're also drawing on techniques from behavioural economics to study such things as how people form expectations.
If we don't start now to find new approaches to handle these and other alternative futures, we won't be prepared for whatever comes our way.'
. . . . . .My added comments: If you want to know what central bankers are thinking you need to read these kinds of speeches. This speech is chock full of concepts that could impact change in the global monetary system which is what we cover here.
Please notice the concern being expressed that central banks can move too slowly and fall behind the innovation curve. Also, please notice how the ideas for potential change talked about tend to evolve over many years. This is how most central bankers look at things. They see potential changes as happening gradually over long time frames. They acknowledge a risk for a sudden crisis, but don't really believe we will have one.
The emphasis on new payments systems and the decreasing use of cash should be noted here. This is a topic we have covered here extensively. It is clear that the expectation is that society will gradually move towards less reliance on cash and that technology will move people towards new payment systems (and even possible new currencies to be used globally). We have covered all this here extensively, but this article shows that the idea is taken seriously in central bank circles.
The one factor that you don't see mentioned much is what happens if some kind of major crisis takes down the current global financial and monetary system. Everyone admits that there are legitimate risks to this happening, but I rarely see any discussion (at least in public articles) about how the authorities would deal with that. A totally cashless society would be a complete disaster if anything took down the existing grid infrastructure an electronic system must have to operate. Again, everyone admits there is at least some risk of this happening. Anything from a solar flare to global conflict using EMP weapons to coordinated cyber attacks by major powers could trigger a grid failure. It's impossible to eliminate this risk.
This is why we will never see a completely cashless society in my view. People have to have some kind of emergency currency available in the event of a systemic failure. We will probably see the kinds of changes talked about in this article, but forms of currency/money that people can use in an emergency situation (cash, coins, precious metals, etc) will always serve a needed purpose no matter how much technology changes the current system.
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