By Parke Shall
Central bankers seem to have one purpose over the last few years, and that is to find out anyway possible to stimulate their respective economies. Over the last 20 years, we have seen stimulus in almost all major geographical economic locations and heading into 2017, Central Bankers are running out of strings they can pull.
We see negative interest rates all over the globe, we see interest rates here in the United States advancing only 25 basis points after one of the greatest bull market runs in history. We see Central Banks that are afraid to take tightening measures, and therefore have begun to experiment with new types of quantitative easing.
An article in the Wall Street Journal last week mentioned that Central governments could potentially try and incorporate blockchain as one of their methods for distributing currency. Citing the good things that have come with bitcoin, including decentralization and easy person to person transfers, Central Banks are apparently now considering using blockchain for quantitative easing. The Wall Street Journal stated,
When it comes to bitcoin and digital currencies, central banks might be considering the adage: "If you can't beat them, join them."
In a research paper published on Monday, economists at the Bank of England advocated that central banks issue their own kind of digital currency. Using the U.S. as a case study, they argued it could give a permanent boost to the economy of around 3%, as well as providing policy makers with more effective tools to tame financial booms and busts.
BOE economists John Barrdear and Michael Kumhof write that "reductions in real interest rates, distortionary taxes, and monetary transaction costs" would boost the economy.
Much like physical cash, digital currencies like bitcoin allow direct payment from one person to another, but they also have all the advantages of bank transfers, because large payments can be made instantaneously across the globe.
We think this idea is ridiculous and it goes to show how clueless central banks are.
Talk about missing the point. Bitcoin is a great idea and it is going to be around for a while simply because it is decentralized. The point is that its users don't want Central Banks involved with it at all. They want a currency that they can move amongst themselves without being intervened by the government.
It's funny. It is almost as if the Federal Reserve decided that they can't physically print money fast enough and that making it digital would be an easier way to simply gush out cash to stimulate their respective economies quicker. The central banks are missing the point that digital currency is not there to be their tool to continue to ruin the economy.
It was created because it has a finite supply and doesn't involve anyone (P2P) while at the same time having checks and balances that involve everyone (the blockchain). It's the Wikipedia of currency. There is nowhere in that equation for the government to fit in. It was created for the purposes of transparency. Nobody that is interested in digital currency today is going to buy into the concept of a government issued digital currency because it is going to face the same issues as convectional currency. Namely, it's being run by a bunch of boobs.
This is why, again, we like the idea of Bitcoin. Bitcoin is going to be the original crypto currency no matter what happens going forward. It will be the digital currency that other digital currencies wind up pricing themselves against and measuring themselves against when we get to that point. Because it has a leg up and it is out in front of all other digital currencies, we believe will continue to evolve as planned and it will continue to rise in value as time passes.
Central bank ideas for digital currency will only be as serious as the public takes them. While it is validation for the means in which Bitcoin operates, which is great news, we don't think government backed digital currency will get anywhere anytime soon.
Central banks are trying to adopt a tool that was made to skirt their system. In doing this, they are validating Bitcoin and its purpose. Central banks continue to miss the point, and this is yet another reason why we are long the original digital currency, Bitcoin.
Disclosure: I am/we are long BITCOIN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.