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Friday, December 29, 2017

North Korea Updates

The situation with North Korea and the US certainly remains unresolved. Since this problem has the potential to become very disruptive to markets and (in a worst case scenario) the stability of the entire financial system, we must monitor events closely. 


Below are links to a couple of recent articles that don't indicate things are improving at this point in time. Also, we have the Winter Olympics coming up soon in South Korea which adds some tension to the situation.

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South China Morning Post - Article on relations between China and N. Korea getting Worse

The sub heading for this article states that China will never accept North Korea as nuclear power. The article goes on to say that China remains committed to trying to prevent nuclear weapons on the Korean peninsula, but is concerned that North Korea has changed its stance on this issue from previous administrations there. Obviously, China is a key player here and their attitude on the situation is important to track.

FoxNews - North Korea Testing Mounting Anthrax onto ICBM's

"North Korea is beginning tests on mounting anthrax onto intercontinental ballistic missiles that would strike the U.S., a report said on Wednesday just two days after the White House’s U.S. National Security Strategy stated Kim Jong Un is pursuing chemical and biological weapons."

I think it is obvious that nothing good is likely to come from this news. It should be noted that North Korea has denied this story. 


South China Morning Post - Is the World Running out of Options on North Korea?

"The latest United Nations sanctions on North Korea are expected to choke its economy still further, but with Washington and Pyongyang showing no signs of stepping back from their face off, observers have warned that the world is running out of options to resolve the crisis."


Jim Rickards maintains his forecast that war is the most likely scenario (70% chance), but moved back the end of his time frame to mid 2018 (from Spring 2018). He also talks a bit about a couple of weapons the US has been working on that are not fully disclosed to the public yet in this recent interview. (see bold items in list of topics discussed in the interview just below)


Topics Include:
*Year in Review 2017
*Wealth Gap – Top 1/10th of 1 pct control more wealth than the bottom 90 pct
*Average incomes declining over close to 40 years
*Transcending partisan politics to understand how the system is inherently advantaged or disadvantaged for some and how it affects societal stability
*How societies deal with these kind of structural imbalances
*Financial system stability as a function of scale
*What institutional investors focusing on liquidity as a due diligence priority may be implying about the views forming on systemic stability
*Why the system still has not de-levered since the the 2008 GFC, and how risk it is even more concentrated today
*Fed policy update and implications for 2018
*Why avoiding a disorderly stock market decline is now being considered in Fed policy
*North Korea Update
*Secret US Weapons Programs: Waverider, Nap of the earth microwave systems

Tuesday, December 26, 2017

Scientific American - Beyond Bitcoin - How Technology Could Fix our Broken Financial System

Here is an interesting new article appearing in Scientific American. It is written by a couple of MIT related experts (Alexander Lipton & Alex Pentland). If you have been reading this blog for any length of time, this article will probably be of interest. It is a deep dive into what has caused Bitcoin to rise to prominence and then offers a proposal on how to improve on it in the future in an effort to shore up the financial system. 


When I see articles like this, it amazes me how many of the issues we have discussed on this blog are being looked at by various serious experts. This article covers a lot ground similar to what we have talked about here for some time. Below are a couple of excerpts from the article to give you a feel for the tone. 

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"Bitcoin's promises are grand. Its proponents—mostly techno-savvy idealists and libertarians but also some criminal types—expect it to become a global currency that eventually supplants national currencies, which, in their minds, can be easily manipulated. Some enthusiasts even believe that Bitcoin is the digital version of gold, perhaps forgetting that gold gains stability both from its physical attributes and from billions of stakeholders and that in the digital world, good technologies are routinely overtaken by better ones."

. . . . .

"As the first successful decentralized digital currency, though, Bitcoin is an impressive breakthrough. The underlying technology and the philosophy of an unregulated, peer-to-peer financial system are innovative, and Bitcoin poses practical solutions to big problems. Of course, it's only one application of blockchain-based distributed ledgers. Blockchain, after all, is a technology, not a singular ideology: it should not be conflated with the driving philosophy behind Bitcoin or with the motivations of any of its current and future applications. Just as it has the potential to solve some of the existing problems of our financial system, it can be used to entrench them instead. And when you consider that a key element of power is the control of money—both existing money and future money creation—we can already peek into the Pandora's Box of moral hazards that this technology has opened.

Take the central banks of the major reserve currencies such as the U.S. Federal Reserve and the Bank of England. Trust is often associated with size—the bigger, the more trustworthy—but these players have proved such thinking to be a grave mistake. They have repeatedly chosen to make the “little guys” poorer by diluting their financial obligations through inflation, suppressing interest rates and other policies. Recently they have been testing negative interest rates and contemplating ways to get rid of cash."

. . . . 

"With that possibility in mind, our lab at the Massachusetts Institute of Technology is working on creating a digital currency suitable for large-scale transactional purposes. Called Tradecoin, it will be indelibly logged on a blockchain and anchored at all times to a basket of real-world assets such as crops, energy or minerals. Doing so will help stabilize its value and make it easier for the public to trust it. The core idea is that a broadly useful currency needs both human trust and efficient trade systems."

. . . .

"It is exciting that for the first time ever, there is the possibility of worldwide digital currencies that are largely immune to selfish policies of the rich central banks that control much of the money. Indeed, a flurry of new alternatives is likely to emerge, and a few might ultimately rise to compete with the biggest reserve currencies."   . . . .

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My added comments: My understanding of this proposal (TradeCoin) is that it would be intended to operate outside the current central bank and banking system. The authors seem to agree with many of the criticisms of those who say these institutions have failed in their mission to the public (they call them selfish and openly criticize their policies). They suggest this is why people are seeking alternatives like Bitcoin, but they don't see Bitcoin or central bank digital currencies as the answer. They go even further to suggest that a new globally usable peer to peer currency (TradeCoin) is needed to restore public trust and a sense of fairness. They say it needs to be asset backed as well to gain public trust.

We can add this as yet another attempt to offer an alternative to the present monetary and financial system. This is a serious article written by MIT related experts.

What this seems to suggest to me is that a lot of people are uneasy with the present monetary and financial system and think it needs to be reformed or replaced. That seems to be where the agreement ends. After that, there seem to be almost endless proposals now on what those reforms should be or in some cases what a completely new system should look like.

The reaction I have seen from experts I trust to this Scientific American article is varied. The consensus seems to be that while something like this might be yet another alternative people could consider, the advantages of legal tender currencies issued by central banks are not likely to be easily overcome by any kind of privately issued currency or token. Only time is going to tell us how all this will shake out.

I cannot possibly even venture a guess as to where all this is heading. Despite covering this now for around four years and seeing lots of potential reforms and replacements discussed, there does not appear to be any kind of consensus forming for actually changing things and the present system just continues to soldier on far longer than many people thought possible. We need to hope we don't have another major global financial crisis because it sure does not look like any kind of replacement system is anywhere close to being agreed upon or ready to actually implement by the existing financial and banking institutions. 

Bitcoin exists outside the current banking system, but is unable to handle the huge volumes required for daily transactions even if people did want to turn to that option. As things stand today, it is not a viable option for a global payments system needing to handle millions of transactions per hour and the electric power requirements to do that are off the charts.

Technology to try and make Bitcoin (and gold for that matter) more easily used in transactions is in its infancy at this time and not widely understood by the public or widely available yet. I continue to believe that without some kind of major new financial crisis, most people will probably continue to maintain trust in the existing system of national currencies issued by central banks with the US dollar remaining as the global reserve currency for now. Changes to that paradigm will likely unfold gradually absent a crisis to speed things up. (we discussed this recently in this article)

All we can do here is try to stay informed and report what is actually happening as best we can. One thing I am sure of. What actually happens is what matters to regular people trying to make personal financial decisionsTrying to figure out what that will be is another thing altogether.

Thursday, December 21, 2017

Jim Rickards -- Why He Views Gold as Money

Recently Jim Rickards gave a presentation explaining why he views gold as money. This speech is only about 30 minutes, is easy to follow, and covers a lot of ground in a short time frame. It is worth your time for sure and also may be worthwhile for someone wanting to learn some basic economic concepts.

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Here is a second video discussion recorded in mid December



This one looks ahead to 2018 on the markets, N. Korea, and Bitcoin


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News note: Yahoo runs this article noting that global debt is still a matter of concern for the IMF and many others who monitor things like that. Here is one quote from the article:

"A wave of failures and defaults on bonds could then quickly pull the rug out from under the global economy.
"It's a serious subject," said one debt specialist on condition of anonymity."
Global debt and related derivatives continue to be one of the potential "snowflakes" that could trigger an avalanche that Jim Rickards talks about in his discussions on the current financial and monetary system. Another one is how North Korea is resolved in 2018. Jim has not changed his forecast that war is the most likely probability at this time, but has pushed his time frame back some to mid 2018 in this recent interview.

While on the topic of North Korea, it appears all is not well with relations between China and North Korea. This article in the South China Morning Post has a sub heading that says:



Wednesday, December 20, 2017

BIS: OTC Derivatives Market Value Falls

The Bank for International Settlements (BIS) sent me this new article link in their regular email update. It provides the latest information they have on the OTC derivatives market. They note a significant drop in this market value.

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"In the first half of 2017, the notional amount of outstanding OTC derivatives contracts retraced its earlier decline. Notional amounts rose from $482 trillion at end-December 2016 to $542 trillion at end-June 2017, close to their level of a year earlier. In contrast, their gross market value, which provides a more meaningful measure of market and counterparty credit risk, declined further in the first half of 2017, from $15 trillion to less than $13 trillion (Graph 1). The last time the gross market value of all OTC derivatives had been below $13 trillion was end-June 2007.
Gross credit exposures, which adjust gross market values for legally enforceable bilateral netting agreements (but not for collateral), also fell to their lowest level since 2007. They declined from $3.3 trillion at end-December 2016 to $2.8 trillion at end-June 2017."

Below I have pasted in the full email update from the BIS
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December 2017

Can central banks talk too much?

Central banks learn from market prices, and also influence market prices to steer the economy. Getting the balance right between talking and listening is important to avoid an echo chamber effect.

CoCo issuance and bank fragility

Larger and better-capitalised banks are more likely to issue contingent convertible capital securities (CoCos), the first comprehensive study of issuance shows.

What makes a global bank systemically important?

The Basel Committee has published the criteria, methodology and information used to update the 2017 list of global systemically important banks (G-SIBs).  

Gross market values of OTC derivatives

Over-the-counter derivatives market value falls

In the first half of 2017, the market value of outstanding OTC derivatives contracts fell below $13 trillion to the lowest level in 10 years, partly reflecting higher long-term yields.

House prices since the Great Financial Crisis

Emerging market house prices have rebounded 6% since early 2016 and are now 17 percentage points above pre-financial crisis levels.

Real residential property prices

Sunday, December 17, 2017

Blog Reader Alerts Me to New Payments Technologies

One of the benefits of doing a blog like this is that I get emails from readers that are very helpful in pointing me to articles and information that I might otherwise miss. In this case a reader forwarded me links to articles about some interesting new payment systems that will be available in the US. Below are links to those articles along with a brief excerpt from each article.

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AJC.Com - Best Ways to Send Money Online

"With the rise of peer-to-peer payment services like Venmo, splitting the check with friends or reminding your sibling to pay you back isn’t as tiresome as it once was.

The services, which allow users to send money to others online or through apps, continue to gain popularity in the U.S. for their convenience (and the fact that fewer Americans carry cash these days)."

. . . .

"To help you narrow down the best P2P pick for you, we’ve rounded up a guide to the most popular, highly rated apps and services in the tech community."




"Thanks to our smartphones, there's no longer a need to put that drink purchase from a friend on an imaginary tab, or give them an IOU.

Mobile payment apps are making it a lot easier to give our friends or family cash, whether it's to split a restaurant bill, offer a gift, or settle a bet."

My blog reader had this to say about Zelle:

"I think Zelle is just an extension of the ACH transfer process for individuals to allow people to use it free instead of writing checks or using cash, as it appears it was developed by the banks to reduce transaction costs and allow speedy settlement for these P2P deals."

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My added comments: These articles were interesting to me in light of recent comments by Fed Vice Chair Randal Quarles. He seemed to downplay Fed interest in central bank digital currencies and put emphasis on improving existing payments systems in the US. Below is his quote on this from an article in Bankingexchange.com:

"Quarles suggested that any such efforts to develop central bank digital currency would be a distraction from—they “might even derail”—efforts to improve U.S. retail payments. He pointed out that the U.S. still lacks a wide scale system for banks and their customers to make instant and convenient transfers and settlements 24/7."

All of this is also in line from what I hear from a payments system expert who works in this space every day around the world. As banks and central banks delve into this whole topic, they are still trying to decide if a separate "central bank digital currency" is really needed and they all are coming to realize that whatever system they implement must be able to tie in to the existing system and handle the huge volumes of transactions necessary to serve as a legitimate mass scale payments system.

We should understand that some of the Fintech efforts being touted as "blockchain" technology may end up being dead ends when tested in the real world which is why companies like IBM are working with partners on new solutions that emphasize ease of connection into the existing banking and payment systems.

All of this is also in line with this article we recently published that suggests that the world is moving towards more payment options competing to please the end user rather than moving towards one centralized global system at this point in time. Just look at all the competing choices covered in just these two articles forwarded to me by a reader here.

Saturday, December 16, 2017

Reuters: Enter the 'Petro' - Venezuela to Launch Oil Backed Cryptocurrency

According to this article appearing in Reuters, it looks like Venezuela is going to attempt to launch "a cryptocurrency backed by oil, gas, gold and diamond reserves." The article notes that the leader of Venezuela (Maduro) "offered few specifics about the currency launch" or how Venezuela "would pull off such a feat". 


It is hard to tell at this point how significant this news may be. There are a number of questions that come to mind including if this cryptocurrency will be issued by a central bank (the first central bank digital currency?) and exactly how you back a currency with "reserves" still in the ground. Below are a couple of excerpts from the Reuters article.
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"Venezuelan President Nicolas Maduro looked to the world of digital currency to circumvent U.S.-led financial sanctions, announcing on Sunday the launch of the “petro” backed by oil reserves to shore up a collapsed economy."

. . . . .

“Venezuela will create a cryptocurrency,” backed by oil, gas, gold and diamond reserves, Maduro said in his regular Sunday televised broadcast, a five-hour showcase of Christmas songs and dancing.


Thursday, December 14, 2017

Bitcoin Followup - Bloomberg Article on Bitcoin "Whales"

In our earlier article on Bitcoin, we noted that trying to cover it is somewhat complicated and that there are a number of factors to consider in trying to analyze it objectively. 


In this Bloomberg article, they point out yet another one. According to the article it seems that 40% of the Bitcoins in existence may be owned by around 1,000 users. Is that good or bad? We'll leave it up to readers to decide for themselves. Below are a couple of excepts from the Bloomberg article.

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"About 40 percent of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management. (Brown is a contributor to the Bloomberg Prophets online column.) What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market."

. . . . .

“I believe that it’s common sense that these whales that own so much bitcoin and bitcoin cash, they don’t want to destroy either one,” says Sebastian Kinsman, who lives in Prague and trades coins. But as prices go through the roof, that calculation might change. 

                       Please click here to read the full article on Bloomberg

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Added notes: If you want an easy place to track the price of Bitcoin alongside other things like gold, oil, and the Dow, I have a page setup on the blog to do that here. I added a quote for Stellar Lumens to the page because Stellar was part of the partnership between IBM and KlickEx that we covered here earlier this year. Stellar Lumens have also had a significant increase in price since that news was announced.

In our previous article on Bitcoin we noted that one obstacle to Bitcoin becoming more commonly used in regular commerce are the extra steps involved in acquiring it and trying to spend it easily. Most everyone who wishes to become involved with Bitcoin will do so by joining a coin exchange first (one of extra steps involved). Coinbase is one of the largest of these types of exchanges. Recently, they alerted their customers that due to increased volume, transactions to buy and sell may be delayed. Here is the information recently put out by Coinbase on this. Here is an article on Yahoo Finance that talks about this issue.

One last note. Readers may find this 25 minute audio interview with Keith Neumeyer of interest. He is the CEO of a major silver mining company and talks a bit about Bitcoin in relation to gold and silver. 


Friday, December 8, 2017

Is There a Path for Bitcoin to Go Mainstream?

Trying to cover Bitcoin is a bit like trying to cover gold in some respects. People that are really into the topic tend to get pretty emotional about it at times. Here, we just try to provide the most accurate information we can without any kind of agenda attached to the information.


In the case of Bitcoin, we have people who are enthusiastic supporters and others who are enthusiastic detractors. When they debate the future of Bitcoin, they can get quite passionate (see links below on the electricity consumption debate). In this article we will examine whether Bitcoin has realistic path for mainstream adoption as an alternative payment system to the existing legal tender currency based payment system.

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First, lets examine where things stand today. Currently, Bitcoin is still in the "early adoption" phase of its life cycle. It has seen strong growth in both its price per coin and also in the number of people who own it, especially in the last couple of years (this chart shows the upwward trend in blockchain wallet users which of course indicates a strong increase in Bitcoin and other cryptocurrencies). The price per Bitcoin has seen explosive growth higher as well with some normal market corrections along the way. 


While this growth trend is impressive, Bitcoin is still far from a payment system that is in use in the mainstream of daily commerce. I believe some reasons for that are:


- it's new and somewhat confusing to many people who are familiar with existing payment systems like debit cards, credit cards, checks, cash, etc. that already meet most people's needs adequately

- it has been somewhat awkward to obtain Bitcoin and also to spend it easily for most people. You have go through extra steps that most people don't see any need for

- the blockchain ledger system that Bitcoin runs on has scalability issues that have not yet been resolved to allow for the huge volumes of transactions per minute a real payment system must be able to support if hundreds of millions of people are going to use it daily

- most merchants don't accept Bitcoin for payment even though some do and there is some incremental growth in those that do over time.

- Bitcoin is not legal tender and there is no official institution that stands behind it. While many Bitcoin proponents like it just because it operates outside the official banking system, for now most people are not comforted by that fact and still trust the banking system they have always used and are familiar with.

I am sure there others, but these are a few of the main reasons why Bitcoin is not widely used for daily commerce. If Bitcoin someday managed to attract 150 million users, that would still only be 2% of the global population. In contrast 95%+ of the global population uses various legal tender currencies all over the world every day. For that matter, I could probably estimate that 20-25% of the global population (1.5 to 2 billion people) probably owns some gold. Gold is another form of money to some people historically and many more people globally are familiar with gold being used that way than Bitcoin.

Given the above information, is there a path for Bitcoin to Go Mainstream? I believe the answer to this question depends upon the answers to some other questions.

- Will we see the existing banking and monetary system fail at some point in the future? If not, why would most people search for alternatives to what they use now and like just fine?

- If the present system does fail, what alternatives will emerge to challenge the present system which is based on legal tender fiat currencies? History suggests gold (and silver) will be a contender. Bitcoin is in the process right now of trying to gain acceptance as another viable alternative.

- If Bitcoin can emerge as a mainstream option, will there be an "easy to use" system in place for people to acquire it and spend it as they are used to doing now with legal tender currencies?

- Can Bitcoin resolve the problem the blockchain has in handling large volumes of transactions? 

I cannot answer all the above questions because I don't know what choices people will make under the different assumptions presented. However, in regards to the last question, we should watch to what happens with DragonCard Visa. It will launch in the UK and will offer people a much easier way to utilize Bitcoin (and other cryptocurrencies) more like regular money. Engadget.com has this to say about DragonCard Visa:

"With Bitcoin trading at all time high, investors are working out whether it's best to sit on their stockpile or make the most of it while they can. For those wishing to utilise their investment, opportunities can be limited, with only a small number of big companies currently supporting cryptocurrency transactions. London Block Exchange (LBX) wants to change that. It's launching a new Visa debit card that will let users spend their Bitcoin (and other digital currencies) anywhere across the UK."

This concept is very similar in the way it will work to Glint (which we covered here) which seeks to make gold easier to hold and spend like regular money. Making anything easier to use and understand is important to encouraging it use in everyday mainstream commerce.
Both Glint and DragonCard try to solve the problem by simply allowing the users of their MasterCard or Visa to pay for things anywhere those cards are accepted just like they use their debit card or credit card now. This is a very important step forward towards more mainstream adoption. 

Both of these new payment options do charge a fee (.5% of each transaction) to do the behind the scenes real time conversion into the local legal tender fiat currency at the point of sale (the merchant gets paid in his local currency). Goldmoney offers its users the ability to buy gold or bitcoin and also offers a prepaid card that can be funded by selling gold or bitcoin held in your account for a 1% fee.

So it will be interesting to see if the fees inhibit wide scale use for payments or not. Like anything, the bigger the volume of transactions, the more likely that the fees can go lower and thereby encourage even more use. The newly offered products (Glint and DragonCard) that automatically convert to fiat currency at the point of sale are only available in the UK for now (still in startup mode) so they will need to prove they can cross over the threshold of adoption for wide scale use in daily commerce. 

Under the present circumstances, legal tender currencies have a built in advantage over competitors of any kind (gold or Bitcoin) because they are universally accepted for payment and supported by official institutions that most people trust.

What we need to watch over time is to see if these alternative payment systems can overcome the advantages of legal tender currencies and especially if something happens to shake public trust in the existing system

My own guess is that absent a new major crisis that undermines the existing system, things will just rock along without a major sea change in the way people pay for things. Alternatives like gold and Bitcoin can gain some market share based on new technology that makes them easier to use for most people. But that process likely happens gradually over an extended period of time. 

In the crisis scenario that truly undermines public confidence in the present system, all bets are off. Both gold and Bitcoin are poised to benefit dramatically under that scenario. Now they both have ways to make it easier for the general public to own them and spend them in ways they are familiar with. That could lead to a realistic path for more mainstream adoption for either or both of these alternatives.
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Added notes:

For those interested in views on Bitcoin coming from alternative media sources, you may wish to listen to this discussion about the potential for Bitcoin vs. Gold in the future:







In the Youtube discussion just above, included is a debate on how much electricity is required to keep Bitcoin operating and if that will become a major obstacle for Bitcoin in the future. Both sides can throw out a lot of data in an effort to try and support their view. Below are links to just 3 articles that will give you an example of this debate:

Bitcoin on track to consume the entire electricity supply by 2020

(Bitcoin electricity consumption data cited in the article linked just above)

Opposing view article suggesting the Bitcoin electricity usage claims are "sensationalized"

When I see all this my head tends to explode and I have to ask:

How is the average person supposed to have any idea what the correct information is on all this? It boggles my mind to think that we have come to a point where in order to try and stay on top of all the changing technology that MIGHT impact our monetary system (or might not), now you must somehow become an expert in the dynamics of energy consumption. 

The only thoughts I can offer on Bitcoin (not blockchain, but Bitcoin) at this time are:

- we cannot dismiss it completely as a factor for major impact in the future no matter how many obstacles it has to overcome. People did that with Donald Trump and look how that turned out. People have proclaimed Bitcoin would die several times now and have been proven wrong so far. Bitcoin wallet holders increased substantially in 2017.

- in my view, the thing to watch carefully with Bitcoin is whether or not it can achieve a critical point of mass adoption by enough people to be viewed as a true alternative to the existing currency system. Will something like DragonCard Visa be what makes that possible?

- if Bitcoin cannot become a viable alternative payments system, can it still become a viable alternative for storing wealth long term (more like people have viewed gold)? Does a younger generation see Bitcoin as their new version of gold?

- will Bitcoin end up like a Ponzi scheme as many detractors predict? Will the "early adopters have a chance to profit, but the "late arrivers" be left holding the bag? 

One thing I know. Bitcoin is like gold in this regard. There are people for and against it that are very passionate and vocal in their views on it one way or the other. More and more people are paying attention to it and there is no end to the number of people trying to predict its future. Central banks prefer to ignore it, but are finding that harder to do as more people are attracted to look into it due to its huge price rise.

What all these people are really trying to do is predict how people will behave and what choices they will make in the future. Here, I just simply don't try to do that. I believe Jim Rickards complexity theory is valid and that trying to make these kinds of predictions involves too many complexities including how the "herd" may react to a crisis. I do think that anyone trying to make their own personal decisions is best served by having the most accurate information possible as input and that what actually happens is what matters. That is what I try to focus on here as best I can. I will admit I never imagined it would get this complicated when I started this blog.

Thursday, December 7, 2017

Lots of Studying by Central Banks on Digital Currencies

We have noted here that at some point next year we could see the first central bank digital currency show up. This won't be surprising since this topic is being studied all around the world by central banks and the IMF and BIS are also watching the space.



Below are links that will give you some examples of how pervasive this topic is in the world of central banking even as central banks have not yet made any actual significant change that might impact the global monetary system. In just one article, Bloomberg takes us on a tour around the globe to see how the major central banks view both Bitcoin and distributed ledger technolgy (see link below).

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Bank for International Settlements (BIS) - Central Bank Cryptocurrencies

"New cryptocurrencies are emerging almost daily, and many interested parties are wondering whether central banks should issue their own versions. But what might central bank cryptocurrencies (CBCCs) look like and would they be useful? This feature provides a taxonomy of money that identifies two types of CBCC - retail and wholesale - and differentiates them from other forms of central bank money such as cash and reserves. It discusses the different characteristics of CBCCs and compares them with existing payment options."

IMF - Central Banking and Fintech - Brave New World?

"Instead, citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities. If privately issued virtual currencies remain risky and unstable, citizens may even call on central banks to provide digital forms of legal tender."

Bloomberg - Here is What the World's Central Banks Think about Bitcoin

"The guardians of the global economy have two sets of issues to address. First is what to do, if anything, about emergence and growth of the private cryptocurrencies that are grabbing more and more attention -- with bitcoin now surging toward $10,000. The second question is whether to issue official versions."



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Conclusion: It is hard to tell how quickly we might see central bank digital currencies show up. My guess is that Singapore, China, and Russia are the most likely places to see it first. There are still questions to be resolved for any central bank studying the idea:

- Will individual citizens be able to open central bank accounts to hold digital currencies?

- If so, how would that impact the private commercial banks?

- Would a central bank use a distributed ledger to support a digital currency or not?

- Will a new standard ledger technology emerge that all or most banks and central banks adopt to use with digital currencies?

These are just some of the questions being considered. Some even say that central banks should stay away from digital currencies and blockchain technology completely. 

Until we see some actual central banks adopt a new version of their currency (the so called central bank digital currency), we just won't know how quickly this might spread around the world. Someone has to stick their toes in the water and test things out first. Who will it be?
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Added note: US Fed Vice Chair Randal Quarles addressed the issue of both cryptocurrencies (private and official) and distributed ledger technology in this recent article carried on Banking Exchange.com. The points he makes in this article align almost perfectly with what we have reported here. Central banks are studying, testing, etc. But the process does not move quickly and they are very cautious about making changes.

Below are a couple of excerpts from the article:

. . . . .
"The challenge, as explained by Quarles, is for new payments mechanisms to achieve necessary scale while controlling financial and technical risks.

“Not surprisingly,” said Quarles, “because striking the right balance takes time, genuine innovation in payment systems over history has often been measured in decades, not years.” Quarles referred to banking and payments industry efforts, notably those aimed towards building a faster payments system that have been moving forward with Federal Reserve System cooperation."
. . . . .
"Quarles acknowledged that some have suggested that the stability issue could be addressed by having central banks issue their own digital currencies. Several years ago an informal and unofficial concept of a “Fedcoin” was floated in a Fed bank blog as a subject for discussion. More recently, some experimentation has occurred overseas, such as a pilot effort by the Monetary Authority of Singapore, that nation’s central bank.


Quarles struck a very cautious note here—he used the word “caution” or forms of it frequently in the speech.
For a nation like the U.S. with an extensive banking system and much demand still for physical cash to venture into virtual money would require intensive review of legal and risk issues, Quarles said.
“I am particularly concerned that a central-bank-issued digital currency that’s held widely around the globe could be the subject of serious cyberattacks,” said Quarles, “and could be widely used in money laundering and terrorist financing.”
Quarles suggested that any such efforts to develop central bank digital currency would be a distraction from—they “might even derail”—efforts to improve U.S. retail payments. He pointed out that the U.S. still lacks a widescale system for banks and their customers to make instant and convenient transfers and settlements 24/7."