Tony Richards, Reserve Bank of Australia: It seems improbable that currencies like Bitcoin could ever displace national currencies
It’s difficult to avoid writing about distributed ledger technologies, so we won’t. Last month Australian Craig Wright claimed to be the elusive inventor of bitcoin, Satoshi Nakamoto. Displaying uncharacteristic scepticism, many mainstream media outlets doubted his claims. Whether it’s true or not, the story attracted great interest.
Distributed ledger, blockchain (some argue the two are not the same), bitcoin and all the variants are big news. They are increasingly big news in payments despite a lack of clarity about just how and to what the technology can be applied. Clarity is being sought, however.
For example, Swift recently issued a “position paper” on distributed ledger technologies, written in collaboration with consultancy Accenture. It identifies eight “critical factors” that need to be addressed for financial industry-wide adoption of the technologies:
- Strong governance
- Data controls
- Compliance with regulatory requirements
- Identity framework
- Security and cyber defence
The list is unsurprising given it comes from Swift. These are mainly characteristics of Swift’s various offerings and expertise. There are many who believe, however, that distributed ledger will herald a rethink of the banking industry. Financial services organisations have been scrambling for the past few years to work out if they have a future in a digital world.
In a recent address for the Institute of International Finance’s blockchain meeting, US Federal Reserve governor Lael Brainard said current developments in the digitisation of finance were important and deserving of “serious and sustained engagement” on the part of policymakers and regulators. This is happening in the US, via a Federal Reserve Board multi-disciplinary working group that is analysing financial technology.
The UK Government commissioned its chief scientific adviser Mark Walport to investigate distributed ledger technology and a report was published in December 2015.
Russia’s central bank has set up a working group, as has the Bank for International Settlements.
Australia’s regulators are also pondering a digital, distributed ledger future for payments. Tony Richards, head of the payments policy department of the Reserve Bank of Australia (RBA), told a payments innovation conference in Sydney in February that while the bank “has not reached a stage where it is actively considering this” in a more distant future there may be a digital version of the Australian dollar.
“As RBA has noted in the past, it seems improbable that privately-established virtual currencies like Bitcoin, with its significant price volatility, could ever displace well-established, low-inflation national currencies in terms of usage within individual economies,” he said. “Bitcoin has, however, served to stimulate interest in the potential offered by distributed ledgers, extending to the possibility of central bank issued digital currencies.
“And I think it remains to be seen if there is real demand for a digital equivalent of cash and what it might offer end-users relative to what will be offered by the various forms of real-time payments that are being developed in many countries…”
This is an excerpt. The full article is available in the June 2016 edition of Banking Technology. To get your free printed copy of the magazine, please register here.
This article, Digital currency & payments: heads together on the blockchain, first appeared on Banking Technology.