This recent speech by Agustin Carstens of the Bank for International Settlements (BIS) is further confirmation of what we have been reporting here for some time. He talks about money and payment systems and looks forward to what we might see in the future in terms of "digital money". Please note that he does not see any immediate future for either cryptocurrencies or Blockchain/DLT technology implementation at central banks. Below are a few excerpts from the speech. (I added some bold type and underline for emphasis)
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Regarding the use of Blockchain/BLT technology in central banks:
"One interesting development in the central banking community is ongoing experimentation with
distributed ledger technology (DLT) as a means to enhance operational robustness. People often use
DLT and Bitcoin interchangeably, but they are not the same! It is important to emphasise that DLT is the
underlying technology for Bitcoin, which is just one use case. DLT is simply a set of processes and
technologies that enable multiple computers to maintain collectively a common database. DLT does not
mean mining of coins, public ledgers and open networks.
And no central bank that I’m aware of is
contemplating these properties in its DLT experimentation.
While central banks play around more with DLT, I think it would be useful to highlight two
findings. The first is a Bank of Canada study noting that
a DLT-based payment system meeting central
bank requirements would be similar to what we have today (ie private ledgers, closed networks and a
central operator). The difference is that a network of computers would be used to settle a transaction
instead of one computer. The second is an ECB and Bank of Japan study concluding that processing times
would be three times longer using DLT versus current systems. This may not seem like much when
processing times are measured in seconds, but today’s standard is instant.
My take is that current versions
of DLT are not any better than what we already have today."
Regarding a Future for Cryptocurrencies in Central Banks:
"As a means of payment, the acceptance of cryptocurrencies has not reached critical mass and is
unlikely to do so for a number of reasons. First, the system is highly inefficient and expensive. As
highlighted in the BIS’s Annual Economic Report, the energy and computing costs associated with
cryptocurrencies amount to an environmental disaster."
. . .
"All evidence to date points to the conclusion that cryptocurrencies face inherent limits in terms of efficiency
and scalability."
. . .
What’s next?
"Money and payments continue to evolve, and I think the future is promising. I see more robust and resilient
systems from central banks offering immediate settlement. I see foundations being laid for new, innovative
front-end user interfaces that provide convenience, promote financial inclusion and permit increased
economic activity. I see infrastructure being developed that will allow for more efficient and cheaper crossborder
payments and remittances. I see central banks continuing to play a critical role in pushing the
boundaries of how technology can enhance the payment landscape.
In doing so, central banks will need to monitor and manage new and different risks arising from
the latest technologies. The use of DLT and other technologies, such as artificial intelligence and quantum
computing, comes with new challenges.
We still need to address questions related to the use of newer
technologies, including reliability and security; interoperability between new and existing systems; the
legal underpinnings of the processes associated with the technology; and data integrity and privacy. These
issues are not easy, and addressing them will probably take some time given their complexity.
What I struggle to see, however, is cryptocurrencies taking off in any major way. Cryptocurrencies,
as a unit of account and payment instrument, simply cannot compete with the value proposition offered
by central banks and their systems. It is hard to compete with human intelligence and experience in
managing processes and systems. It is hard to beat instantaneous settlement, which many central bank payment systems provide. It is hard to replicate the enormous network that exists with today’s payment
infrastructure."
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My added comments: For some time now, we have reported here that despite constant news articles proclaiming the age of blockchain based digital currencies has arrived, central banks and organizations like the IMF and BIS have not endorsed the technology as anything particularly new and innovative for their needs. At least none of the currently available versions. They mention ongoing studies of the technology, but also always include all the challenges and complicated problems associated with it. They include a statement along the the lines of "this will require further study and will take some time" etc.
This has gone on for years now with no indication that anything major is on the near term horizon. We hear that Sweden may attempt to try a central bank digital currency sometime in 2019.
All this is in line with what I hear from highly credible sources who work directly in this field on the front lines on a daily basis. Therefore, we continue to report that we find no evidence that any kind of blockchain based digital currency is on the near term horizon for either any major central bank or the IMF. If we hear new information, or the situation changes, we will of course report it.
