Prescott Regency - Will Cryptocurrency soon have a bank of its own?
2017 has seen a booming year for cryptocurrencies. For instance, Bitcoin's price has increased by over 300 percent since the beginning of the year. On the other hand, the price of Ethereum has also increased by over a whopping 300 percent. All the hype surrounding digital currencies has led the Bank of International Settlements (BIS) to explore the feasibility of how a central bank cryptocurrency may appear.
There is added value to a central bank that includes a digital currency in their present monetary mix of reserves. However, such a bold move comes with certain risks. It has the possibility to cause disruption to the commercial banks' business model, as well as the market for existing cryptocurrency.
Will Central Banks hold cryptocurrency apart from cash and reserve?
Presently, central banks issue money in two different forms; cash and reserve. Cash are payments made in physical form, which can be used by anyone and can be directly exchanged between sellers and buyers without the requirement of confirmation from a third party. Reserves are payments made in electronic form and are limited to only those users who hold their accounts with the central bank, like some private banks.
Cryptocurrencies combine the element of anonymity, along with the feature of electronic payment. The central banks in many parts of the world have these features in mind. They are contemplating two completely different versions of central bank cryptocurrencies (CBCCs). They are a retail version that will be universally accessible, and a wholesale version that will be limited only for use by the financial institutions.
Merits And Risks Of CBCC
The feature of anonymity is quite relevant to its retail version. However, the wholesale version of CBCC that takes leverage of the distributed ledger feature of digital currencies has the chance of reducing settlement expenses. This is done through enhanced efficiency in the system of inter bank payment. A retail central bank for cryptocurrencies, which conceals the personal identities of users using a public address, can offer counterparty and third-party anonymity. This feature can also decrease the risk/threat of identity theft. It can also ensure that the transactions made by people are completely private.
Moreover, anonymity from a third-party may also increase the possibility of criminal activities. When central banks are worried about this possibility, they may ask its users to furnish their personal identities. Thus, there will only be a limited degree of anonymity provided to the users. However, this could negate the objective of issuing a central bank offering cryptocurrencies. In case a central bank offers the option of complete anonymity with the option of less volatility, there could be serious complications for the privacy-oriented cryptocurrencies.
If there are easier conversions between a CBCC and accounts held at commercial banks, it could be risky for the existence of banks. It may even disrupt the model followed by the commercial banks. In this scenario, banks may have to explore new means to attract their depositors. The function of monitoring borrowers may get hampered due to this interaction.
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There is added value to a central bank that includes a digital currency in their present monetary mix of reserves. However, such a bold move comes with certain risks. It has the possibility to cause disruption to the commercial banks' business model, as well as the market for existing cryptocurrency.
Will Central Banks hold cryptocurrency apart from cash and reserve?
Presently, central banks issue money in two different forms; cash and reserve. Cash are payments made in physical form, which can be used by anyone and can be directly exchanged between sellers and buyers without the requirement of confirmation from a third party. Reserves are payments made in electronic form and are limited to only those users who hold their accounts with the central bank, like some private banks.
Cryptocurrencies combine the element of anonymity, along with the feature of electronic payment. The central banks in many parts of the world have these features in mind. They are contemplating two completely different versions of central bank cryptocurrencies (CBCCs). They are a retail version that will be universally accessible, and a wholesale version that will be limited only for use by the financial institutions.
Merits And Risks Of CBCC
The feature of anonymity is quite relevant to its retail version. However, the wholesale version of CBCC that takes leverage of the distributed ledger feature of digital currencies has the chance of reducing settlement expenses. This is done through enhanced efficiency in the system of inter bank payment. A retail central bank for cryptocurrencies, which conceals the personal identities of users using a public address, can offer counterparty and third-party anonymity. This feature can also decrease the risk/threat of identity theft. It can also ensure that the transactions made by people are completely private.
Moreover, anonymity from a third-party may also increase the possibility of criminal activities. When central banks are worried about this possibility, they may ask its users to furnish their personal identities. Thus, there will only be a limited degree of anonymity provided to the users. However, this could negate the objective of issuing a central bank offering cryptocurrencies. In case a central bank offers the option of complete anonymity with the option of less volatility, there could be serious complications for the privacy-oriented cryptocurrencies.
If there are easier conversions between a CBCC and accounts held at commercial banks, it could be risky for the existence of banks. It may even disrupt the model followed by the commercial banks. In this scenario, banks may have to explore new means to attract their depositors. The function of monitoring borrowers may get hampered due to this interaction.
https://prescottregency.com/
https://www.facebook.com/prescottregency/
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