As central banks are increasingly snubbing Bitcoin, they’re cautiously studying the “disruptive potential” of its underlying technology or what the ECB now refers to as DLT. European Central Bank Executive Board Member, Yves Mersch, acknowledged this much in a recent speech, advising the Eurosystem members to reflect on the “wider implications” of its adoption.
Blockchain, Blockchain…errr DLT
On April 25, ECB’s Yves Mersch gave a speech at the Deutsche Bank Transaction Bankers’ Forum 2016 in Frankfurt am Main. But unlike the US Fed’s Lael Brainard in her recent talk, “Bitcoin” wasn’t even mentioned once by Mersch. But what’s more interesting perhaps is the evolving jargon for this potentially disruptive technology.
“Today, I would like to approach the discussion of DLT [Distributed Ledger Technology] from a central bank perspective,” said Mersch, who then admitted that it’s just “one of several possibilities” for the Eurosystem to “keep pace with market developments and technological progress” while urging for “common understanding” of its the potential impact.
Interestingly, what was once referred to as “Virtual Currency Schemes” in 2012 quickly became Blockchain Technology when the banks began studying it, realizing Bitcoin wasn’t going away. Next came Distributed Ledger Technology when the experimenting started. Now, the ECB simply refers to it with the obscure acronym DLT.
So is it a groundbreaking technology that could include billions of unbanked and financially excluded people into the global economy or is it a type of sandwich? For the average person on the street such an acronym reveals zilch.
Central Banks Put the ‘Trust’ back in Trustless
Let’s take a step back for a second. The disruptive potential of Bitcoin’s technology—fine, let’s call it DLT— has been covered ad nauseam. Even the Bank of International Settlements (BIS) or “the central bank of central banks” warned that cryptocurrency could jeopardize their model in a November 2015 report. Mersch echoed this stating “it may possibly disintermediate or even make redundant some market actors that do not provide core functions.”
But what could be more core than money creation itself? The Bitcoin network does it pretty efficiently. In fact, many would even agree that the Bitcoin public ledger and protocol do this in a much more transparent and predictable manner. No overseer can manipulate the supply and alter interest rates at a whim to inflate prices, while destroying market signals and confusing investors in the process. In fact, many have argued that the unfettered power of central banks have supported the opposite of “market stability.”
Now, if DLT is indeed found “technically superior in terms of safety and efficiency” by the current research, Mersch still called on his constituents “to reflect on the wider implications of the use of this technology for the role of central bank money.”
Since Bitcoin is a trustless network without a central entity, which could potentially render trusted intermediaries such as central banks obsolete, the “wider implications” of large-scale Bitcoin adoption are a threat to the status quo. Mersch adds:
We will have to reflect to what extent it affects our role as the trusted third party for the settlement of payments and securities in central bank money, or as the issuer of risk free base money as anchor of monetary policy.
Reflect & Deflect
Throughout the speech, Mersch showed openness to DLT while urging more “reflection” on the possible implications for the Eurosystem and the global economy as a whole. But while his tone was ostensibly warm, the call for its “standardization and interoperability” while ensuring “that technological innovation does not lead to a disruption or re-fragmentation in the market” was resounding, nevertheless.
Moreover, Mersch all but confirmed that their DLT would be a restricted ledger, albeit toying with an option to open it for all citizens in his speech. “It goes without saying that when accessing the DLT network, the right level of access and data protection requirements have to be respected,” he stated.
Mersch also added:
The emergence of new market actors requires reflection on issues such as how to ensure a level playing field for newcomers and long-established players, as well as an appropriate level of protection for the users.
Let’s not forget that Bitcoin has been leveling the playing field since 2009—no reflection required—while empowering individual users to secure their own holdings through encryption. Yes, the encryption that the central powers are currently waging war on.
So are central banks cherry-picking Bitcoin’s least disruptive aspects for the sake of “safety” and “efficiency”? Hardly, as it should be clear to anyone that restricted, centralized networks such as the ECB’s are far from safe and rather inefficient. Perhaps they’re afraid of Bitcoin’s true “disruptive potential?” Or maybe are they simply not understanding the new technology and “missing the point?“
What is clear, however, is that the incumbent monetary system will continue to rename, strip down Bitcoin’s most important features in an attempt to fit it into its own mold. And as central banks continue to reflect, Bitcoin’s growing usage could reach a tipping point, turning into a tsunami that could dislodge the “anchor” of monetary policy.
Do you think the central bank’s DLT approach will be successful? Let us know in the comments sections below!
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