Cryptocurrencies Living Next To Fiat, ‘I Think That Could Work’ Says Bank of Canada Official
Explaining the always growing interest in cryptoassets and currencies, Senior Deputy Governor of the Bank of Canada (BoC) Carolyn Wilkins proposed that “people are feeling like they got a raw deal, by public and private institutions,” during her refreshingly open-minded presentation on distributed ledger technologies (DLT), which she prefaced by quoting from a crypto-themed cover of Drake’s “Started From the Bottom.”
The scope of Wilkins’ talk revolved around how DLT affects, and could in future affect, the BoC’s ability to discharge its duties as a socially-minded lender of last resort and developer of monetary policy. She proposed the possibility of a central bank-issued asset.
The ‘Ironies’ of Crypto
Many of Wilkins’ key points revolved around what she sees as ironies “abounding” in the cryptoasset industry. She proposed that bitcoin mining is “actually very concentrated” due to the domination of a few mining pools; that “blockchain only shifts the need for trust” rather than getting rid of it, adding that “programmers themselves have a lot of power – but they may not actually have the responsibility that goes with it.”
In addition, she highlighted what must be the very institutional view that lack of a money-creating faculty harms cryptocurrencies, grazing the very complex academic subject regarding the relationship between money supply and inflation, which is not at all straightforward.
A trilemma was recognized, in that three critical conditions of DLT technologies, at least at present (within Wilkins’ scope of understanding), cannot be simultaneously satisfied. Namely, a DLT or blockchain cannot always be a) decentralized, b) efficient, and c) have correct ledger entries.
The BoC has, according to Wilkins, been experimenting with Jasper, a “toy interbank payments system,” testing blockchain implementations for interbank payments, post-trade settlements of cash and securities, and cross-border payments.
With respect to integrating blockchain into the BoC’s payments systems for an efficiency bump, Wilkins stated that “by design of these already centralized systems that need to go through the books of the bank, there’s always going to be a part that needs to be centralized.”
Notwithstanding all of Wilkins’ concerns, she remained excited about what the future holds for DLTs, commenting that the prospect of a Central Bank-issued cryptoasset is “one of the biggest questions from the social point of view […] that we’ve faced in a while, because it has implications for financial inclusion, privacy, access to a safe asset, and at the same time there are some major commercial interests at stake.” The jury is still out on whether or not the BoC could be interested in issuing its own token in the future.
Commenting on the prospect of central banking being replaced by DLTs and cryptoassets, Wilkins said “there’s not [currently]a real reason to worry from a financial stability point of view – but this stuff is moving pretty fast.”