| Welcome to Chain Letter! Great to have you. Here’s what’s new in the world of blockchains and cryptocurrencies. | China may be just about to launch its digital renminbi in two cities. The People’s Bank of China is planning a real-world pilot of its digital currency, the first phase of which could begin before the end of this year, according to a report from an influential Chinese financial news publication. That would support recent speculation that China is on the verge of becoming the first major economy to issue sovereign digital money.
In August, an official from the PBOC said the currency, which China has been developing for several years, was “close” to being issued. The new report, from the financial news outlet Caijing, outlines specific next steps. It says the PBOC could launch a small-scale experiment in Shenzhen before the end of the year and then scale it up in 2020. In addition to Shenzhen, the pilot will take place in the eastern city of Suzhou, according to Caijing. If the tests go well, presumably the currency will go live soon afterward.
The Caijing report seems to confirm several details about the forthcoming currency system, called digital currency electronic payment (DCEP), that have appeared in news reports during the past several months. For instance, it confirms that the PBOC will partner with commercial banks to issue the currency, and that during the initial phase the banks will compete on how best to implement it. It says tests will likely include seven state-owned firms: the four largest commercial banks and three big telecom companies. According to the news report, the tests will involve real-world service scenarios in the areas of transportation, education, and medical treatment. Read the whole story here. | | The central banker’s central banker says central banks are absolutely necessary. Central banks must remain the “foundation” of the financial system, even after money turns digital. That was the core argument of a speech last Thursday by Augustín Carstens, general manager at the Bank of International Settlements, which is often called the central bank for central banks.
The rise of Bitcoin, the move by tech firms into financial services, and Facebook’s proposed stablecoin, called Libra, have all “raised questions about the basic architecture of the money and payment systems,” but the discussion needs more depth to it, he argued. The money system is like a skyscraper, Carstens said. When we admire a skyscraper, “we often overlook its foundations.” The foundation of the monetary system is “trust in the currency,” and that’s something only central banks can provide, Carstens said: a “central bank public good.”
Of course, a central banker would say that. But many people think this kind of trust can in fact be achieved by entities other than central banks. In some ways, systems like Bitcoin are testing that hypothesis.
Carstens is dismissive of Bitcoin, particularly because of its vulnerability to so-called 51% attacks, in which a single miner or group of miners can gain control of more than half the network’s mining power and uses it to reorder old transactions. “If a sufficiently large group of bookkeepers collude to rewrite the history of the distributed ledger, payments that were made far in the past could be made null and void,” he said. “That simply cannot happen when the central bank is the final guarantor of finality.”
He doesn’t seem to have much hope for Libra, either. “Private moneys have come and gone,” he said. “History tells us that eventually the temptation to maximize profits starts eroding the issuer’s commitment to the currency’s value, which ultimately succumbs to governance failures.” Even if a stablecoin is run by a non-profit (like Libra is supposed to be), its long-term sustainability will hinge on the ability of the people in charge of it to keep it from collapsing.
But it is possible for the public and private sectors to work together. Central banks might be happy to leave the consumer-facing aspects of next-generation payment systems to the private sector, but they should still make up the foundation, said Carstens.
For instance, in China, the central bank imposes strict rules on the technology companies behind WeChat Pay and Alipay, QR-code payment apps that have become ubiquitous there, at least in part to protect consumers. And India’s real-time payment system is run by a utility that is partly owned by the central bank. Such public-private partnerships might work for stablecoins, too. “Provided that the central bank can underpin the core of the payment system, all types of payment solution are feasible,” Carstens declared. | | Loose change Fill your pockets with these newsy tidbits. - Dutch multinational bank ING is working on technology to help clients securely store digital assets. (Reuters)
- More than 80 Japanese banks have said they want to join JPMorgan’s blockchain-based international payment network, called the Interbank Information Network. (Bloomberg)
- Saga, a much-hyped stablecoin system that has a Nobel-winning economist as an advisor and works a lot like Facebook’s Libra has been described, has launched. It’s not available in the US, however, due to “regulatory uncertainty.” (CoinDesk)
- Three US men have been charged for running a $722 million cryptocurrency fraud that the US attorney in New Jersey has called a “high-tech Ponzi scheme.” The men operated a network that solicited money from investors who thought they were getting shares in a mining pool, and rewarded them for recruiting new investors. (Bloomberg)
- More than half of all the bitcoins in circulation haven’t changed hands in at least six months. (Wall Street Journal)
- China’s internet censors have started blocking etherscan.io, a “block explorer” site that can be used to view Ethereum transactions. (CoinDesk)
- The US Internal Revenue Service has included a very broad question in it’s new Schedule-1 form, which taxpayers use to report extra income and deductions: “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” (Quartz)
- Bitcoin miners in China control over 65% of the network’s mining power, according to new research. (The Block)
- Twitter CEO Jack Dorsey has announced that the company will fund a “small independent team” to develop “an open and decentralized standard for social media.” (Twitter)
| | “To judge cryptocurrency based on mainstream adoption is to judge it on a metric it was never designed to achieve.” —Jill Carlson, a consultant for cryptocurrency companies and co-founder of the nonprofit Open Money Initiative, which is focused on financial freedom. Cryptocurrency’s key feature is censorship resistance, she argues in an essay for CoinDesk. In other words, Carlson says, the people for whom it actually solves a problem they couldn’t solve otherwise are those that have been censored in some way, and “by definition, are not the mainstream.” | | | | | |
