Eugne Etsebeth is an ex-central bankerwho was employed as a technologist at the South African Reserve Bank from 2013 to 2017. During his time at the reserve bank, he notablychaired the virtual currency and distributed ledger working group.
In this opinion piece, Etsebeth outlines why he believes central banks won’t be able to adapt to innovations in cryptocurrency, arguing they simply aren’t set up to compete with sea changes in technology.
It’s a familiar trend, one that happened in communications (internet), and that is now playing out in energy (solar), manufacturing (3D printing)and finance (cryptocurrency) power and control are moving into the hands of the individual and away from nation states.
This has huge implications for central banks, which today enable nation states to maintain their monopolies over the issuance of notes, coins and sovereign bonds. While communications and manufacturing are not their focus, cryptocurrencies and initial coin offerings (ICOs) fall predominantly in the realm of central banks.
In these systems,central banks don’t issue legal tender. Rather, miners and algorithms now control the issuance of tokens effectively, the money supply. Whereas previously banks were licensed to store, send and spend currency, now wallet providers and exchanges allow the same features.
The currency renaissance has arrived and central banks are studying cryptocurrencies, though some central banks are more open to change than others.
Singapore has been investigating the notion of using distributed ledger technologies to settle cross-border transactions in real time, and the Bank of England has experimented with Ripple. Central banks are even looking to build their own versions of central bank-issued digital currency (CBDC).
Even still, central banks are not well equipped to deal with the cryptocurrency renaissance.
In fact, there are10 good reasons why most central banks will find cryptocurrencies insurmountable. Sure, a small number of forward-thinking (and acting) central banks willmaintain monetary competiveness with the burgeoning cryptocurrencies and ICOs that have reared their decentralized heads.
Still, most will succumb to a mix of the following issues:
Central banks will need to attract and retain fresh talent that will enable them to deal with the new openness and transparency demands, as well as digital transformation and the increasingly complex global world.
Decision-making in central banks is like wading through treacle decisions take months because of numerouslayers of hierarchy.
Working groups need to compile voluminous and detailed documents that need to be reviewed and signed by all parties before they can proceed to the heads of departments or the deputy governors.
Academics, economists and big-picture thinkers excel in central banks. The academics ponder on conceptual issues andthe economists make interpretations from data, whereas the policy makers and regulators mull over the cause and effect of promulgating laws.
However,technologists are generally not part of the discussion when it comes to policy and economic decisions for currency.
Although some central banks are engaging in experimentation, there is a fear of going from proof-of-concept to pilot phase.
This is natural, should a central bank make an error, it may turn out to be a reputation buster and reputation is the cornerstone of central banks. There is also some trepidation that the early regulation of cryptocurrencies, and associated new technologies, may legitimize their adoption.
Central banks are similar to conglomerates in that they have a number of different and distinct departments that require diverse skills and outputs.
These differences make it difficult to approach a new technology and economic tour de force like cryptocurrency, because it doesnt fit neatly into any one of the industrial-style conglomerate domains.
To highlight the conglomerate type nature of central banks, the core departments and skill sets are listed below:
Most central banks do not have substantial software development capability. Therefore any new project will have to buy its technology. There is an acute shortage of central bankers who can explain or use Merkle trees.
A large portion of central bankers are career central bankers, so the desire and ability to change arenot incentivised. Change is often considered a threat to staff, and threats are met with jelly-like stickiness to the status quo.
Banks are licensed to operate by central banks, giving them the ability to create money from customer deposits.
The central bank asks the banks to protect depositor’s hard-earned money and to serve as many customers as it can: i.e. maximizingfinancial inclusion. The task of banks is therefore to service anation’s citizens at the behest of the central bank.
These relationships and licenses are expensive to buy and will not easily be changed to include new members.
Just as the departments within central banks tend to be siloed, so too are the intergovernmental departments that look at currency matters.
They cover treasury, financial intelligence (KYC), financial services conduct authority, central bank, tax revenue and secret service units. Each of these units may have different acts and regulations that overlap cryptocurrencies and ICOs.
Internationally the nation-state must get guidance from a multitude of organisations like the G20 or G7, International Monetary Fund (IMF), Bank of International Settlements (BIS), Financial Action Task Force (FATF) and INTERPOL. International coordination often requires prolonged diplomacy and mismatched agendas.
Statue of Davidimage via Shutterstock
The leader in blockchain news, CoinDesk strives to offer an open platform for dialogue and discussion on all things blockchain by encouraging contributed articles. As such, the opinions expressed in this article are the author’s own and do not necessarily reflect the view of CoinDesk.
For more details on how you can submit an opinion or analysis article, view our Editorial Collaboration Guide or email [emailprotected].
- Cryptojacking Lets Strangers Mine Cryptocurrency With Your ... - October 21st, 2017
- Introduction to Cryptocurrency - CryptoCurrency Facts - October 14th, 2017
- Cryptocurrency Flash Crash Is Said to Draw Scrutiny From CFTC ... - October 7th, 2017
- Cryptocurrency Alternatives to Bitcoin - due.com - October 7th, 2017
- Learn BitCoin and master the world of cryptocurrency - October 7th, 2017
- Almost Every Cryptocurrency Is Tanking Right Now | Time.com - September 7th, 2017
- Cryptocurrency boom stalls as regulators focus on ICOs ... - September 7th, 2017
- Why Marketers Need to Pay Attention to Cryptocurrency -- Now - Entrepreneur - September 7th, 2017
- Opinion: That Floyd Mayweather-backed cryptocurrency is another sign of a bursting bubble - MarketWatch - September 7th, 2017
- Putin-Backed Political Group Advances 'Green' Cryptocurrency Concept - CoinDesk - September 7th, 2017
- First He Beat Up His Girlfriend, Now He's Selling Cryptocurrency With Paris Hilton - Daily Beast - September 7th, 2017
- Cryptocurrencies have already recovered from last weekend's crash ... - TechCrunch - September 7th, 2017
- Venezuela Cracks Down On Cryptocurrency Mining - CryptoCoinsNews - September 4th, 2017
- Mobius Foresees Cryptocurrency Crackdown Sparking a Rush to Gold - Bloomberg - September 4th, 2017
- The Aggregate Cryptocurrency Market Cap Is Up 810% Year to Date - Motley Fool - September 4th, 2017
- How to make upwards of $1,000 a month by mining cryptocurrency - Mashable - September 2nd, 2017
- Chinese Officials Contemplate Suspending Cryptocurrency ICOs - The Merkle - September 2nd, 2017
- Cryptocurrency Investment Course 2017: Fund your ... - Udemy - September 2nd, 2017
- Six Banking Giants Just Decided to Partner to Create a New Cryptocurrency - Futurism - September 2nd, 2017
- 7 Cryptocurrency Predictions From the Experts - fortune.com - September 2nd, 2017
- Russia Could Pass Cryptocurrency Law This Year, Senior Lawmaker Says - CoinDesk - September 2nd, 2017
- AxionV: AI Cryptocurrency Fund Leading the Way in ICO Security - HuffPost - September 2nd, 2017
- PayThink Custom tokens are the future of cryptocurrency - PaymentsSource - September 1st, 2017
- Litecoin Prices Surge Above $70 as Crypto Market Tops $175 Billion - CoinDesk - September 1st, 2017
- Dharma wants to let anyone borrow a small amount of cryptocurrency - TechCrunch - September 1st, 2017
- PR: Archain Is Building an Uncensorable Internet Archive Inside a Cryptocurrency - Bitcoin News (press release) - August 31st, 2017
- Cryptocurrency Market Just Reached Total Value of $160 Billion - Futurism - August 31st, 2017
- Another banking trojan is trying to loot your cryptocurrency wallets - The Register - August 31st, 2017
- Cointal Revolutionizes P2P Cryptocurrency Trading - CryptoCoinsNews - August 31st, 2017
- $160 Billion: Cryptocurrency Market Sets New All-Time High ... - CoinDesk - August 30th, 2017
- Central Banks Can't Ignore the Cryptocurrency Boom - Bloomberg - August 30th, 2017
- Whoppercoin is a cryptocurrency you can eat or trade - The Verge - August 30th, 2017
- Learn about cryptocurrency mining with this interactive blockchain demo - TNW - August 30th, 2017
- Good Morning, Cryptocurrency! Vietnam To Create Legal Framework For Digital Assets - ETHNews - August 26th, 2017
- Cryptocurrency mining may void warranty on Inno3D GPUs - PC Gamer - August 26th, 2017
- Russian Deputy PM Says He Supports a State-Backed Cryptocurrency - CoinDesk - August 25th, 2017
- How to Learn About Cryptocurrency In The Bitcoin Era - Daily Beast - August 25th, 2017
- Bernanke to Give Keynote Speech at October Cryptocurrency Event - Bloomberg - August 25th, 2017
- Estonia wants to launch its own government-backed cryptocurrency called 'estcoin' - CNBC - August 25th, 2017
- Aimwise to Create Standards for Cryptocurrency Crowdsales - newsBTC - August 25th, 2017
- A Mysterious New Cryptocurrency Is Surging After Being ... - August 25th, 2017
- Cryptocurrency Cyber Crime Has Cost Victims Millions This Year - Bloomberg - August 25th, 2017
- This European country may hold an ICO and issue its own ... - TechCrunch - August 23rd, 2017
- Bitcoin Skeptic Mark Cuban to Invest in Cryptocurrency ... - August 23rd, 2017
- $150 Billion: Total Cryptocurrency Market Cap Hits New All-Time ... - CoinDesk - August 23rd, 2017
- Cryptocurrency Market cap Sets a New All-time High of Over $150bn - newsBTC - August 23rd, 2017
- South Africa's Central Bank: It's 'Too Risky' to Launch a Cryptocurrency - CoinDesk - August 23rd, 2017
- Mark Cuban backs new $20 million cryptocurrency venture fund - CNBC - August 22nd, 2017
- VR World Decentraland Raises $25.5 Million In Cryptocurrency - UploadVR - August 21st, 2017
- AMD Releases Beta Graphics Driver for Better Cryptocurrency Mining - Bitcoin Magazine - August 21st, 2017
- Philippines Central Bank Grants First Cryptocurrency Exchange Licenses - CoinDesk - August 21st, 2017
- Media A-Listers Back eSports Betting Firm As It Dives Into Cryptocurrencies - Deadline - August 20th, 2017
- Australia Weighs Jail Time for Cryptocurrency Exchange Offenders - CoinDesk - August 20th, 2017
- Cryptocurrency wallet Exodus adds OmiseGo in latest update - CryptoNinjas - August 20th, 2017
- SEC Statements Spur ShapeShift to Review Cryptocurrency Listings - CoinDesk - August 20th, 2017
- Australian money cops gain powers to regulate cryptocurrency - The Register - August 18th, 2017
- Could Cryptocurrencies Replace Cash? - Investopedia - August 18th, 2017
- NVIDIA CEO Believes Cryptocurrencies Have Longevity - Investopedia - August 18th, 2017
- Substratum Launches Substrate Cryptocurrency to Power the New Decentralized Web - The Merkle - August 18th, 2017
- More Evidence that Cryptocurrencies Are a Bubble? - Investopedia - August 16th, 2017
- Cryptocurrency Exchange ShapeShift Acquires Bitcoin Wallet Startup - CoinDesk - August 16th, 2017
- Canada Approves First Cryptocurrency Sale in Property Rights Shake-Up - Voice of America - August 16th, 2017
- From UFC To Fighting Fake News With Cryptocurrency - SportTechie - August 16th, 2017
- Will the Bitcoin Fork Continue to Boost the Cryptocurrency's Value? - TheStreet.com - August 16th, 2017
- 'Father of Financial Futures' Seeks Cryptocurrency Hardware Patent - CoinDesk - August 14th, 2017
- How Exactly Do You Get Rich Off The Hot New Cryptocurrency? - Gizmodo Australia - August 14th, 2017
- Ripple Price Forecast: Factors Suggest XRP Cryptocurrency ... - August 13th, 2017
- US Foreign Sanctions Bill Mandates That Governments Monitor Cryptocurrency - Bitcoin News (press release) - August 13th, 2017
- What Would Happen if Cryptocurrency Became More Popular Than Cash? - Futurism - August 13th, 2017
- $126 Billion: The Cryptocurrency Market Just Set a New All-Time High - CoinDesk - August 12th, 2017
- Ukraine's Central Bank Moves Closer to Cryptocurrency Regulation - CoinDesk - August 12th, 2017
- Nvidia shares fall on data center revenue but chips ride cryptocurrency boom - Reuters - August 12th, 2017
- For Cryptocurrencies, the Future is Now - Daily Reckoning - August 11th, 2017
- Nvidia more bullish on cryptocurrency than AMD - MarketWatch - August 11th, 2017
- Coinbase Becomes First Bitcoin 'Unicorn' - Fortune - August 11th, 2017
- Buoyant Bitcoin stirs fears of a crypto-currency bubble bursting - The Independent - August 10th, 2017
- At last, a kosher cryptocurrency: BitCoen - The Register - August 10th, 2017
- Bitstamp Will Add Ether Trading to Cryptocurrency Exchange ... - CoinDesk - August 10th, 2017
- Cryptocurrency Investment Fund Completes $1.8 Million ICO ... - CoinDesk - August 10th, 2017
- Russian social network VKontakte allows cryptocurrency advertising - FinanceFeeds (blog) - August 10th, 2017