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Crypto chief: Centralised digital currencies could deter corruption

Bobs Guide
10/23/19

The ability to program digital currencies could grant central banks greater control over the monetary system, according to co-founder of cryptocurrency investment platform Revix, Sean Andrew Sanders.

“Physical cash has limitations in terms of corruption, terrorist financing. You have all these activities because you aren’t actually interacting with the money, and if you’re able to program that then that’s the very interesting thing about digital money,” says Sanders.

“This means if you send money to someone, there may not be a central party that knows exactly who the sender and receiver is, but there can be algorithms and there can be other kinds of databases that just verify and say ‘this is a good transaction and this is a bad transaction’….. certainly that is quite powerful for central authorities.”

“I think if you look at the People’s Bank of China – and the rumours are that they’re a couple of months away from releasing their first digital currency – it makes a lot of sense if you’re wanting to be able to control the money supply as you want to do with monetary policy.”

Maria Demertzis, deputy director at Breugal, says there could be a great deal of digital currency interest from central banks primarily because of the amount of control they bring.

“As we are actually discovering right now, the central banks have actually lost some of this control because we are in an environment of lower interest rates. So the arguments for wanting to look down this route [of digital currencies] is to try and identify whether this might actually improve the controllability of the central bank vis a vis its role in managing the value of money,” says Demertzis.

Several central banks have unveiled plans to adopt digital currencies. The People’s Bank of China announced in August that its own digital currency - a project it has been exploring since 2014 - is “almost ready” to launch, as reported by Reuters. Sweden’s Riksbank has had a digital “e-krona” in the works since 2017, and in the US representatives French Hill and Bill Foster wrote a letter to the Federal Reserve asking the central bank to consider the development of a US digital dollar.

Centralised digital currencies could present an attractive alternative to cryptocurrencies and “stablecoins” such as Facebook’s Libra, which continue to draw attention from regulators around anti-money laundering (AML) and counter terrorist financing (CTF) obligations.

“If central banks step in it will bring a level of stability from an economic perspective and will set the bar from a regulatory perspective,” said Rachel Woolley, global AML manager at Fenergo, a company that provides AML solutions for banks, in an email.

However, that could come with a cost to cryptos, according to Woolley.

“The stability that the central banks could bring to cryptocurrencies would also reduce the risk and therefore the returns. This has the potential for cryptocurrencies to lose their appeal.”

Libra has been under scrutiny recently, with several key backers abandoning the project in the past few weeks due to increased pressure from regulators. Aside from compliance concerns, the usefulness of Libra has also been questioned.

“I am quite sceptical on what Libra could achieve beyond a payment system,” says Demertzis.

“It can be an asset, like Bitcoin was. Bitcoin was very much an asset particularly because it was very volatile. That’s an investment decision, but it’s not a currency. A currency is something more than that, and it benefits from being very stable. That’s what a currency needs: to be stable and convincing, and it needs to be backed up by a sovereign.”

The lasting power of cryptocurrencies is yet to be discovered, but centralising cryptos may remove some of their initial appeal. At a banking seminar held in Washington on October 20, Libra’s top executive David Marcus said Libra could be open to basing itself in national currencies such as the dollar, rather than the initially envisioned synthetic one. This contrasts from the Libra Association’s first white paper in June, which stated its intent to build a “simple global currency” with a “decentralised blockchain.”

“I think it’s a way to appease regulators if I’m honest,” says Sanders, in response to Marcus’s remarks.

“I think it maybe would be better for regulators if each country kind of had their own stablecoin, but that doesn’t bring about the global system that I think Libra was aiming to achieve.”