A report entitled Chief Economists’ Workshop and published by the Bank of England on August 19, 2015 describes bitcoin as harder money than gold. Andy Haldane, Chief Economist and the Executive Director of Monetary Analysis and Statistics of the Bank of England, stated that “Digital currencies are ‘harder money’ than a gold standard” because “sustained adoption [of bitcoin] would see ongoing deflation,” reads Bitcoin Magazine.
“In the near future the financial system could be supporting billions of new users – possibly double the current size,” states the report.
Haldane began a presentation on digital currencies by speaking about the basics of bitcoin and its pros and cons as a peer to peer payment system. There are 4 main aspects, according to Haldane:
- Distributed: greater resilience, no central control, a coordination problem
- Pseudonymous (and possibly anonymous)
- Push-only (no ‘direct debits’): payments are final and cannot be imposed
- Individually cheap, but socially expensive (but this could be fixed)
Haldane and his team also spoke about the fact that the digital currency is able to disrupt the traditional financial industry because of the world’s severely underbanked regions.
Moreover, the report describes broader implications for society mentioning the fact that 2 million UK adults don’t have bank accounts and 2.5 billion people in the world have no access to financial services. Plus, Haldane notes that in the developing world, non-banks are providing financial services (e.g. telecoms/technology companies). Haldane’s team also states that 80% of the world’s population will own a smartphone within 5 years. So, they say lots of customers could start using digital currency to store their funds.
However, Haldane stated:
“The least interesting thing about Bitcoin, and other distributed ledger systems, is that they are digital. Digital currencies are important for how they deploy the available technology in a new way.”
It’s worth mentioning that not so long ago, Matthias Kröner, Fidor Bank of Germany CEO, was interviewed by International Business Times (IBTimes) on the subject of digital currency.
During the interview Mr. Kröner called bitcoin “a natural part of the digital lifestyle”:
“We simply think that everything which is coming along with crypto or even bigger with the blockchain is a more or less a natural part of the digital environment or the digital lifestyle. It is, as always, not a good thing to ignore or exclude important parts of a certain lifestyle once your customers are executing this lifestyle.”
However, the fundamental question of how central banks respond to the financial system being reshaped by technology remains open.