As part of the blockchain conference, I chaired a session with some central bankers talking about their views on distributed ledger technologies. These central banks have run trials and are thinking about it, but none of them are particularly big on blockchain right now. As mentioned on Friday, they see it as a long-term development that has so many players involved that there won’t be anything happening overnight.
In the middle of the conversations, I did ask specifically for a view on bitcoin and bitcoin regulations. I found the answer fascinating. It went along the lines of the following:
bitcoin is not big enough today to affect our monetary policy. In fact, it is still a very small community and so this is not high on our priority list today. bitcoin does not affect market stability and is not competing with fiat currencies, so it is not an issue yet. If it becomes an issue, then global authorities would start discussions to protect the euro and the dollar.
Equally, there are formalised institutions begin created today to regulate the emerging bitcoin world. There are bitcoin banks, and we already have a comprehensive set of rules and regulations for banks; there are bitcoin exchanges, and we already have a comprehensive set of rules and regulations for exchanges; and there are bitcoin payment schemes, and we already have a comprehensive set of rules and regulations for payment operators.
So, is this an unregulated market? Not really. There are regulations for cryptocurrencies like bitcoin, and these regulations are important. After all, do consumers want to have trusted institutions taken out of their lives? We do not think so. You talk about decentralised identity schemes, but what happens if you lose your key to your identity or if it is compromised? You need a central authority to recover it for you.
In fact, this whole idea of peer-to-peer commerce is flawed, as do you really want to have to manage the trust between these peers yourself? No. You need central authorities to give them the stamp of approval to ensure the trust.
Therefore we, as central banks, have no issue with bitcoin or the Bitcoin protocol. We purely have issues with the intermediaries operating on that protocol, and that is why we have regulations for intermediaries to sort out those you can trust versus those you cannot.
Urmm, haven’t central bankers realised that democratised trust is in the technologies and code?