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Cryptoeconomics and Central banks

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”grid” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1463146108811{padding-bottom: 20px !important;}”][vc_column offset=”vc_col-lg-offset-1 vc_col-lg-10 vc_col-md-offset-1 vc_col-md-10″][vc_column_text]Note that PNG in the context of this article meant Papua New Guinea or its residents.

[dropcaps type=’normal’ font_size=’45’ color=’#191919′ background_color=” border_color=”]C[/dropcaps]entral banks have been observing the cryptocurrency scene since the early days of Bitcoin. In the past year, adoption has grown substiantially with several nations adopting a positive stance on the use of cryptocurrencies.

On 18 August 2017, the head of PNG’s central bank Governor Loi M. Bakani [a true cryptobank governor], released a transcript of his speech hosted by the Institute of Banking. hat was heavily positive on the use of Cryptocurrencies. The need to stay informed on “new technologies” and tha leads to “responsibility towards its citizenry” was cited by the central bank key factor as to why the Bank of Papua New Guinea has decided to engage in cryptocurrencies.

PNG is not the only country to have adopted such a welcoming stance towards blockchain and cryptocurrencies.[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”grid” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1463146163185{padding-top: 50px !important;padding-bottom: 44px !important;}”][vc_column width=”1/3″][vc_single_image image=”63″ img_size=”full” qode_css_animation=””][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”30″][/vc_column][vc_column width=”1/3″][vc_single_image image=”64″ img_size=”full” qode_css_animation=””][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”30″][/vc_column][vc_column width=”1/3″][vc_single_image image=”65″ img_size=”full” qode_css_animation=””][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”30″][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”grid” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1463146184322{padding-bottom: 70px !important;}”][vc_column offset=”vc_col-lg-offset-1 vc_col-lg-10 vc_col-md-offset-1 vc_col-md-10″][/vc_column][/vc_row][vc_row row_type=”parallax” parallax_content_width=”in_grid” text_align=”center” background_image=”66″ full_screen_section_height=”no”][vc_column][vc_column_text]In May 2017, the central bank of city state Singapore, Monetary Authority of Singapore[MAS] released a press statement sharing that the central bank has successfully completed a test of “Project Ubin” which is a derivation of cryptocurrency. The namesake of this project was from Pulau Ubin, an island off the coast of city state Singapore.

Collaborating with a company named R3, along with several other banks such as Bank of America Merrill Lynch, Credit Suisse, DBS Bank. Project Ubin was treated from the perspective of a central bank. The test was first revealed to the public in November 2016.

Switzerland too has been an advocate of cryptocurrency adopts. Quick to adapt, the regulatory authorities in Switzerland has constantly revised views on Cryptocurrencies. Initially treating it as a virtual currency before revising it to be regarded as a foreign currency. In July of 2016, the Swiss authorities announced that the City of Zug is now the world’s first government to officially accept Bitcoin in exchange for government services. This pilot program was introduced in order to test the viability of such a service. For the pilot program, a small sum of up to USD 200 per transaction was accepted. It was deemed sufficiently viable such that Zug continued to accept Bitcoin payments after the initial test has concluded.[/vc_column_text][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”177″][icons icon_pack=”font_elegant” fe_icon=”icon_quotations” size=”fa-lg” type=”square” custom_size=”45″ custom_shape_size=”40″ border_radius=”100″ border=”yes” target=”_self” icon_color=”#ffffff” icon_hover_color=”#141212″ background_color=”rgba(255,255,255,0.01)” hover_background_color=”#ffffff” border_color=”#ffffff” border_width=”1″][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”35″][vc_column_text]

There is no easy way from the earth to the stars.

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– Seneca

[/vc_column_text][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”174″][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”grid” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1463146237211{padding-top: 74px !important;}”][vc_column offset=”vc_col-lg-offset-1 vc_col-lg-10 vc_col-md-offset-1 vc_col-md-10″][vc_column_text]What are the implications?
Increased adoption by central banks paves the way for increased research. Central bankers tend to share what are on their minds. In the case for the PNG Central Bank, he has signalled his intention to increase commitments for cryptocurrencies. As for Singapore and Switzerland which are acknowledged as the early adopters of FinTech there should be increased commitments s.t. we can expect more technical studies to be carried out in the near future.

Is it good for the economy? Macro in general?
Yes. It would be hard to contest this. Central Banking should be forward looking, if central bankers are aware of the growth in cryptocurrencies it would be easier for them to provide regulatory directions. Businesses and consortiums tend to have their own interests and function essentially as lobbyists. Only through organic research and analysis could central bankers obtain a proper perspective on the state of the blockchain.

Increased regulations does not mean it is bad, take Switzerland’s stand for example. The Swiss authorities alters its view on cryptocurrencies almost yearly [see 2014 – 2016]. This means that even the Swiss who are at the forefront of blockchain tech adoption is learning about how the framework affects the real economy.

Looking forward
Increased central banking awareness is a positive step. Rather than taking shots in the dark, regulators that are informed make better decisions on FinTech in general. Although it would be wise to continually observe the stance of central banks. When Satoshi came up with the idea of Bitcoin, it was against the backdrop of the moral hazard caused financial crisis of 2008. It has been nearly 10 years since the credit fuel financial crisis but economies have yet to recover fully.

 

For more on Cryptoeconomics proceed to the definitive article: Cryptoeconomics 101

References

Bakani, Loi M (August, 2017). Speech by governor loi m bakani. Retrieved from
https://www.bankpng.gov.pg/announcement/governor-loi-m-bakani-cmg-speech-at-blockchain-seminar-at-png-institute-of-banking-business-management/

Monetary Authority of Singapore (2017, May) Project ubin: central bank digital money using distributed ledger technology. Retrived from
http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/Project-Ubin.aspx

Swissinfo.ch (2016). Zug first to accept bitcoin for government services. Retrieved from https://www.swissinfo.ch/eng/business/crypto-valley_zug-first-to-accept-bitcoin-for-government-services/42143908[/vc_column_text][/vc_column][/vc_row]

3 thoughts on “Cryptoeconomics and Central banks”

  1. Robert Nordstrom

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  2. Robert Nordstrom

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