Of all people…
The former head of the conservative Bundesbank believes that central banks need to embrace digital currencies and he’s concerned that they’re being left behind. This might be interesting, we thought. Axel Weber has been talking to the FT but, it turns out, he hasn’t shaken off his bureaucratic roots since he took on the Chairmanship of UBS. Instead of embracing Bitcoin, Ethereum, decentralisation and private enterprise, Weber thinks central banks, and the likes of UBS, will benefit from creating their own versions. According to the FT.
Central banks should be more open to creating digital versions of their currencies, which could offer significant benefits to society, the chairman of Swiss bank UBS says. Axel Weber is a past president of Germany’s conservative Bundesbank — and was once tipped as a future head of the European Central Bank. As UBS chairman, he is helping to drive a revolution in how banks, companies and individuals conduct financial transactions. In an interview with the Financial Times, he now worries his former public sector colleagues may be left behind.
“Whilst the official sector very often looks at the risks of these new means of payment, the private sector tends to look at the opportunities they offer,” he says.
What’s worse, a central banker or a central banker who thinks his time in the private sector makes him somehow superior to his former colleagues. Uggh. Anyway, rather than highlighting the transparency and money trail aspects of Bitcoin and its ilk, Weber sees tighter regulation to crack down on…you guessed it…the usual nefarious list of crimes which the authorities have proved incapable of policing for decades before Bitcoin was conceived. The FT continues.
The chairman argues the issue is not the volatility of bitcoin prices – the currency is “simply too insignificant to matter” from a financial stability perspective. It’s more that the threat of the crypto world financing terrorism or enabling money laundering will eventually prompt a stronger response from authorities. There is “a relatively high probability that regulators will regulate it at some point”.
Now the FT, possibly influenced by comments from Weber, begins to get itself muddled, arguing that central bank-created digital currencies would, in contrast to Bitcoin, act as stores of value. Because…they would be “backed by the monetary authorities”.
Less clear cut, however, are likely to be arguments over digital currencies issued by central banks. Like cash, which they could eventually replace — but unlike bitcoin — they would be backed by monetary authorities, so they would also act as a store of value as well as widely accepted means of payment. In China, the central bank has said it will develop a digital currency using the blockchain technology behind bitcoin. In Europe, Sweden’s Riksbank published a report in September suggesting there were few obstacles to issuing e-krona. But other central banks have been much more cautious. Jens Weidmann, Mr Weber’s successor as Bundesbank president, argued the focus should instead be on improving existing payment systems. Like the Bundesbank, the Swiss National Bank is not convinced of the need for central bank e-currencies.
The question of infinite versus finite supply was not mentioned. Moving on…
If conventional fiat currencies were genuine stores of value, they should be a haven in times of panic, obviously. Instead, the FT fears that customers could exacerbate bank runs by switching funds out of fiat into digital currencies in a crisis.
There are fears that in times of panic, customers could quickly switch funds out of normal bank accounts and into e-currencies, exacerbating bank runs. Germans and Swiss also remain heavy users of cash – unlike Swedes.
While Weber makes the valid point that digital currencies can reduce the cost of payment services and provide transparency, the FT article articulates the benefits in a surprisingly narrow way.
Mr Weber, however, says central banks are wrong to think it is a case of either traditional cash or e-currencies. Payment patterns evolve, he says, with younger generations more likely to pay via mobiles, independently of banks. If central banks regarded digital currencies as an opportunity, they could “probably provide non-account-related payment services for society in a cheaper and more economic way”.
The advantages would be most apparent in geographically large countries, where cash transport is expensive — such on the African continent. Mr Weber envisages digital currencies not having the anonymity of cash — indeed features in the currency could identify users, so minors could be prevented from buying alcohol, for instance. But the technology would have to be hacker-proof. “It has to be a very secure means of payment.”
In true bureaucrat fashion, however, UBS is developing its own digital currency which will use blockchain technology to enhance its settlement process.
Meanwhile, UBS is pressing ahead with its own digital currency. It is working with other banks, including Barclays, Credit Suisse and HSBC, on a “utility settlement coin”. It would use the same distributed ledger technology as blockchain and could be used to clear and settle financial transactions. The idea is that “coins” used for transactions would be backed by cash held in accounts at central banks. They would be safer and quicker than current systems based around a single centre counterparty. Mr Weber reports “an openness by central banks to hear about the concept” but admits the scheme is a long way from becoming operational.
Like JPMorgan’s Jamie Dimon, Weber is pushing the “Blockchain is good, Bitcoin is bad narrative”.
Debate about the future of digital currencies has been overshadowed by the hype over bitcoin. Does Mr Weber worry a bitcoin crash might set back digital currency pioneers? The UBS chairman is adamant it will not. “People do…draw the distinction between the construction of bitcoin or cryptocurrencies as they are now, and the potential that the underlying technology has,” he says.
Weber holds back in the article from laying out the globalists’ wish for a digital world currency, but we have little doubt that he would, if asked. We were reminded again of the famous Economist cover from 1988, which predicted a world currency in 2018…with that slashed zero symbol in the middle of the coin.
Slashed zero from Wikipedia:
The slashed zero glyph is often used to distinguish the digit “zero” (“0”) from the Latin script letter “O” anywhere that the distinction needs emphasis, particularly in encoding systems, scientific and engineering applications, computer programming (such as software development), and telecommunications.
(H/T Ned Naylor-Leyland, Old Mutual Global Investors)