CBDCs, Not Crypto, Will Be Cornerstone of Future Monetary System, BIS Says (coindesk.com) 71
Crypto's structural flaws make it an unsuitable basis for a monetary system, according to the Bank for International settlements (BIS). Instead, monetary systems could be built around central bank digital currencies (CBDCs), which are digital representations of central bank money. CoinDesk reports: The BIS, an association of the world's major central banks, dedicates a 42-page chapter in its "2022 Annual Economic Report" to laying out a blueprint for the future of the global monetary system. In that vision, there is room for only some of crypto's underlying technical features, like programmability and tokenization, not for cryptocurrencies themselves. "Our broad conclusion is captured in the motto, "Anything that crypto can do, CBDCs can do better,'" said Hyun Song Shin, an economic adviser and head of research at the BIS, during a press briefing on Monday.
The chapter, which will be published Tuesday ahead of the full report, identifies a number of limitations of crypto, including the lack of a stable nominal anchor. In monetary policy that is a variable -- such as a currency peg -- that can be used to control price levels. Stablecoins, cryptocurrencies pegged to the value of assets like sovereign currencies, are the crypto world's search for such an anchor, Shin said. Stablecoins attempt to "piggyback on the stability of real money issued by central banks."
Shin said the recent crash of terraUSD, a dollar stablecoin with a market capitalization of $18 billion in early May that rapidly lost its peg, illustrated how stablecoins, despite their name, are unstable and don't make good units of account. Unlike other leading stablecoins, such as USDC and USDT, which are reportedly backed by dollar-denominated reserves, terraUSD is an algorithmic stablecoin backed by another cryptocurrency (in this case LUNA) with an algorithm in place to regulate supply and demand of the stablecoin and maintain its peg. "The second important finding is that crypto and stablecoins fail to achieve the full network effects that we normally expect of money," Shin said. Money, Shin said, is the perfect example of a virtuous circle of greater use and greater acceptance. Crypto's decentralized nature, on the other hand, achieves exactly the opposite, namely fragmentation.
The chapter, which will be published Tuesday ahead of the full report, identifies a number of limitations of crypto, including the lack of a stable nominal anchor. In monetary policy that is a variable -- such as a currency peg -- that can be used to control price levels. Stablecoins, cryptocurrencies pegged to the value of assets like sovereign currencies, are the crypto world's search for such an anchor, Shin said. Stablecoins attempt to "piggyback on the stability of real money issued by central banks."
Shin said the recent crash of terraUSD, a dollar stablecoin with a market capitalization of $18 billion in early May that rapidly lost its peg, illustrated how stablecoins, despite their name, are unstable and don't make good units of account. Unlike other leading stablecoins, such as USDC and USDT, which are reportedly backed by dollar-denominated reserves, terraUSD is an algorithmic stablecoin backed by another cryptocurrency (in this case LUNA) with an algorithm in place to regulate supply and demand of the stablecoin and maintain its peg. "The second important finding is that crypto and stablecoins fail to achieve the full network effects that we normally expect of money," Shin said. Money, Shin said, is the perfect example of a virtuous circle of greater use and greater acceptance. Crypto's decentralized nature, on the other hand, achieves exactly the opposite, namely fragmentation.
CBDC (Score:3, Interesting)
Central Bank Digital Currency--AKA social credit scores, 100% auditable transaction chains irrevocably tied to your identity, and instant reporting to a central agency for taxation and citizen monitoring.
Keep that in mind whenever you see a questionable outlet saying that crypto is dead, long live centralized digital fedtokens
Re:CBDC (Score:5, Insightful)
While you are entirely correct, central banks aren't the enemy of crypto. Crypto is the enemy of crypto. BIS is the stopped clock, and this is one of the twice a day.
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Maybe I'll take some of it in gold.
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Thank GOD all of my money was in Bitcoin the last 3 months. Otherwise, it would have seen 8% annualized inflation!
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There are other options, but none worth mentioning which avoid these issues
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Move? There is no way a central bank is going to set up a pile of servers and do their own transaction processing for everybody, if that's what you're imagining.
On the other hand, you could have an organization that runs a non-credit based inter-bank transaction network that all retail banks use and has fees that are small enough many banks don't bother to charge them. Lots of places have this already.
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As for your suggestion: I don't know exactly what you're referring to, but I know Canada's Interac system and that is unsuitable for online payments. Yo
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You don't know the Interac system then. It works just fine for online payments. You can send money to any e-mail address too.
Not "could" (Score:3, Insightful)
The plan for many years now is that we all get BIS CDBCs which are internationally run and managed. You will see a push for everyone on earth to use these things like you have never seen before...
When the push comes (and it will come) resist it as hard as you can, because it's basically the end of humanity as a free species if it's widely adopted.
Luckily I think there will be significant resistance to it across the world but I think the political landscape will look very different after that wind blows through.
The very notion that they find BitCoin dangerous and unwanted is enough reason for me to support it. Eventually. Any sign of CDBC and I'll probably start buying some "free crypto" like BitCoin or ETH.
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No, it's vague because it all depends on conditions of everything at the time, way too many unknowable variables.
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I suspect the backend would be
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Resist harder than the criminal run bitcoin?
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You may be totally right about BIS CDBCs, but that doesn't make bit coins any better. I prefer cash to either of them, despite it's many flaws.
Cash probably gone (Score:1)
I prefer cash to either of them, despite it's many flaws.
Very probably cash will not be an option when CDBCs are rolled out in earnest.
That is why you want to resist as early as possible.
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I'm still trying to figure out who CDBCs are different from what we have now, with credit cards and a banking system that doesn't exist outside of computers.
So I guess the world ended 30+ years ago, when that system went into place.
Enjoy your bunker.
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This might help:
https://www.acheroninsights.co... [acheroninsights.com]
For completeness, going to throw this link in too, an excellent layman's explainer on the Fed. It goes into the plumbing such as the difference between reserves and bank deposits, how money is created and destroyed in a fiat system, as well as their dual mandate:
https://www.amazon.com/Central... [amazon.com]
It's not really about "crypto" and it's not really about payment methods. Imo, it's much deeper. It's an attempt by central banks to create a tool for navigating th
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Re:Not "could" (Score:4, Insightful)
I can't imagine a world where instead of my employer giving me cash each payday, the "money" is transferred digitally to some account
And in that same world it turned out a tweet you had posted was reported, so you couldn't access that paycheck...
Or maybe the part you are looking forward to is if you don't spend any least 50% of your pay within three weeks it all vanishes.
You think of CDBCs like digital transactions today but the deference is the level of control banks have over it directly without your authority, and the level of manipulation planned around the currency.
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I'm already horrified by the people using direct deposit. When you give the rights to make deposits, you also give the rights to make withdrawals [sun-sentinel.com]. Problems are relatively rare, but the impact is very serious when they do happen, and we can expect the number of problems to go up as the economy degrades. And that's definitely going to happen now, because they raised the interest rate, which is going to increase unemployment. (And before anyone starts blathering about the unemployment rate being very low now,
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Re: Not "could" (Score:2)
Sure bro. (Score:2)
*rolls eyes*
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Explain it to me like I'm five. (Score:5, Insightful)
With the likes of Bitcoin, the draws were:
Anonymous transactions - proven to not be anonymous and proven to be undesirable due to ransomware.
Print Your Own Money - mining is now energy prohibitive and only profitable to people who have the money to recommission coal-burning power plants.
I can send electronic transfers of my Canadian dollars to almost anyone in Canada with a bank account.
So my question is... why would I want a "digital currency" to exist? I can work digitally with my existing currency now. Sure, other countries have more fractured banking systems where getting a bank account might be... racially difficult, but electronic funds transfers are a solved problem. Aside from get-rich-quick artists and politicians who don't want to be left behind by the fad train, what is the actual, tangible purpose behind all this?
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Bitcoin, and other digital currencies, were always meant to be a cash equivalent -- a way to digitally store and transfer value -- that wasn't tied to any specific government.
CBDCs are just the government equivalent of embrace and extend for currency. Bros demonstrated they wanted digital, trackable cash so badly, the governments went ahead and started building it. The sad fact is, CBDC will be functionally no better than existing methods of electronic money transfers, they'll simply offer new avenues for f
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Because it's not cash. Many countries already scoff at real physical cash. Everything is a phone transaction, or a bank transfer, paypal, or some other electronic transaction.
It is STILL crypto - you can't do this stuff without cryptographic methods. But it's not a bulky block-chain with a distributed database. Even now, bitcoin, ethereum, and others, all use a *centralized* broker for the majority of transactions (ie, coinbase.com). The real difference here is that it's tied to a central bank. Which ag
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What is all of this "digital currency" faffery trying to accomplish?
So that everyone can make a payment anywhere, including where there is no network coverage, to anyone near them, as long as both have a phone or other CBDC device, without relying on any third party or using cash.
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You know what did that for centuries (and still does)? Gold.
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Like that has actually happened or is going to happen...
You know what did that for centuries (and still does)? Gold.
Gold have all the downsides of cash (easily stolen/robbed/lost, bulky to carry, risk of counterfeit/fake) PLUS additional downside of being difficult to count (do you like to bring a balance and a set of scales with you everywhere?). For making payment, gold have no advantage over a stable and widely recognised cash currency at all, except possibly taking up less room, a suitcase full of gold is probably worth more than a suitcase full of cash, but it still definitely weights much more. Unless you are the
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"a suitcase full of gold is probably worth more than a suitcase full of cash"
US paper currency is about 1 kilogram per 1,000 bills.
Gold is about $59,000 per kilogram.
So if you use $100 bills, cash weighs less than gold of the same value.
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Re: Explain it to me like I'm five. (Score:1)
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While I'm not going to try to explain the purpose of bitcoin because it's been explained so many times, I'll try to explain the purpose of CBDCs: they are an attempt by central banks to compete with bitcoin in order to keep their business in the long run. Why would anyone want to use that is another question, probably because they will force us.
Yeah, that's clear. "and politicians who don't want to be left behind by the fad train" covers that.
Thanks for the response, but so far the answer appears to be "it's bunk".
duh... (Score:2, Insightful)
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How exactly did SWISH solve the thieving practices?
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I don't see even why it's thieving, given it costs money to run a secure transaction network. Then again, maybe someone elash is willing to host a payment processor that costs users nothing and to maintain security and pay for server upkeep costs out of his own pocket.
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Say What Now? (Score:5, Insightful)
Instead, monetary systems could be built around central bank digital currencies (CBDCs), which are digital representations of central bank money.
Last pay period, I got a direct deposit right to my checking account.
I bought some stocks with an app using an account number and routing number.
I donated to a nonprofit using the Stripe plug-in they use on their website.
I made a bunch of purchases with my American Express card.
I paid my American Express bill using their mobile app, which withdrew the money from my bank account, using a routing number and an account number.
A friend of mine sent me money through Zelle. I sent some money to another friend via Venmo. Still another friend reimbursed me via Paypal.
I went an entire pay period without using cash at all. It was all digital representations of dollars, and I am far from unique.
Thus, I must ask: what is the difference between what the dollar is, right now, and a CBDC? Every transaction I performed was electronic, a digital representation of debits and credits. The value of a dollar is determined by a bunch of computers, and a bunch of computers determine how many dollars I have, based on what other computers tell it I should have.
Maybe there's a difference in there somewhere, but I'm sure as hell not picking up on it.
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Maybe there's a difference in there somewhere, but I'm sure as hell not picking up on it.
The current system not run by the central banks / governments themselves, but by private banks.
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Which are tightly regulated by . . . governments, operating on currency, the supply of which is controlled by . . . governments, creating extensive, deep, wide data about everything we do, which can be subpoenaed at will by . . . governments.
What, exactly, and be detailed, does CDBC do that the current system does not?
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The only thing I use cash for is haircuts, and that's only because the business model of barber shops (the barber is an independent business who merely rents the chair from the shop) makes credit cards impractical.
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None of those transfers happened like it appeared to you. They all settled 1-3 days later and there could have been problems in the meantime.
Ethereum will be bought by the Fed and used as a platform for CBDC's. 2.5 minute blocktime these days?
Odds are it'll settle in under 15 minutes and for liquidity the Fed might just reimburse reorgs to effectively honor zero-conf.
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None of those transfers happened like it appeared to you. They all settled 1-3 days later and there could have been problems in the meantime.
Depends on where you live, in the Netherlands, I can send an instant-payment or instant-tranfer from my bank to any other bank at zero cost. it's processed in under 5 seconds, and that's the actual money, not some kind of advance or liquidity-cover.
Re: Say What Now? (Score:5, Insightful)
As you point out, currencies are already effectively digital. However, the banking system, clearing houses, etc. are historically complex.
As I understand it, the primary difference of a fresh, new CBDC would be the centralization. Transactions would run through a central clearing house. That clearing house would be run by the government.
There may be lots of advantages to that centralization, but it also gives the government an incredible amount of both information and power. No need to subpoena bank records, when they already know every transaction you've ever made. Under suspicion? Your transactions can simply be refused.
Cryptocurrencies may have so far failed to achieve it, but separating people's financial lives from their governments is important. Anecdote: I know a guy who got on the wrong side of the local IRS office. Despite crossing all t's and dotting all i's, his bank account would occasionally be emptied, causing all sorts of obvious problems. He would eventually get the money back, but only after a stupidly painful fight.
Governments are made up of people. Some of those people like power, and like abusing power. CBDCs give the governments way too much power, just waiting to be abused.
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Reap what you sow, banking industry (Score:2)
And other solutions can punch out both (Score:2)
Sorry, but central banks may well be the right place to create currency in the first place, but there's ways to do electronic currency that doesn't involve anyone monitoring anything.
The future of cryptocurrency (Score:1)
Isn't this paragraph part self contradictory? (Score:1)
If there is no room for some of Cyrptos technical features, how can you turn around and say CBDCs can do better? This statement see
I like CASH (Score:3)
OPEC (Score:2)
Looking forward to OPEC selling Oil in Cryptocurrency
Venezuela is already doing it https://archive.is/Zdhxe [archive.is]
cryptocurrency payment processor (Score:1)