The love-hate relationship between central banks and blockchain: Will central banks really issue digital currencies?

Bitcoin and blockchain technology are powerful enough to change the world.

If blockchain technology can be applied quickly and efficiently, we can popularize financial services, automatically execute contracts, and even integrate blockchain with the Internet of Things (IoT) to create a chain of things (BoT). However, blockchain is currently mainly used for cryptocurrency transactions.

This inevitably leads people to ask, when will central banks treat Bitcoin and other cryptocurrencies the same way they treat blockchain? After all, central banks control the legal currencies of countries around the world, and they will also maximize their benefits from blockchain technology.

Central banks toy with cryptocurrencies

It’s no secret that most central banks have embraced blockchain technology. The Dutch Central Bank (DNB) is researching its own cryptocurrency. The Reserve Bank of India (RBI) and the Bank of England (BoE) are also tinkering with blockchain. But now, central banks are considering taking their experiments a step further by issuing their own “bitcoins.”

The Wall Street Journal recently published an article on this idea.

Central bank-issued Bitcoin would give policymakers complete control over the amount of money issued, similar to a reserve banking system.

If the central bank issues digital currency, other banks will fail miserably

Just imagine that if the money in your hands is directly kept by the central bank, or you keep your money in the central bank's currency wallet, and the central bank will guarantee the safety of your funds, then commercial banks will basically be useless.

Currently, legal tender is usually stored in banks in a current or fixed deposit manner, first for safety and second for convenience, but it also comes with risks.

Commercial banks may go bankrupt, and this is also a common situation. If the central bank really issues digital currency one day, then commercial banks will really become a cooked duck.

Blockchain may be left out

On the surface, it seems that central banks will soon embrace Bitcoin and blockchain, but this may never happen. Blockchain may become a technology that is about to go mainstream but never truly be accepted by the mainstream.

Simon Dixon, CEO of online investment platform BnkToTheFuture.com, said:

I don't think central banks will use cryptocurrency and blockchain, but I think they will use digital currency for three reasons. First, in order to remove the anonymity of cryptocurrency, they will track all digital currency transactions; second, if a black swan event (a very unpredictable and unusual event that usually causes a chain reaction of negative market reactions or even subversion) occurs again, the central bank can convert all deposits into digital currency; finally, they can become a "technology supplier" and encourage financial technology companies to adopt the central bank's API to develop and maintain their digital currency, so as to achieve the purpose of improving competitiveness.

Living in a paperless world

However, there is another version of the story of banks and blockchain, a happy ending, that is, the central bank will promote the use of blockchain and Bitcoin. Maybe paper money will not exist in the future. So will paper money really become history?

Kumar Gaurav, CEO of blockchain money transfer platform Cashaa.com, believes this is entirely possible.

For example, in ancient times, the way to transfer value changed from salt to gold, and finally coins and paper money began to be used. I personally believe that this evolution will not stop, and cryptocurrency will be the best choice to achieve the next step of development.

Cryptocurrency is a winner, mainstream or not

From any perspective, the world's monetary system will undergo major changes. Blockchain and cryptocurrency have already shown their influence. Even if central banks completely ignore this technology, commercial banks and the community will not stop studying blockchain. However, central banks are likely to accept blockchain rather than ignore it.

Kumar Gaurav points out:

I think the central bank will eventually accept the cryptocurrency system. But the specific operation process is still difficult to say, because the cryptocurrency technology is not mature enough and needs time to consolidate. But only the most efficient way of value transfer has a meaning of existence, there is no doubt about that.

This is definitely good news for Bitcoin enthusiasts, because it means Bitcoin is not only the present, but also the future.