Finance: Research, Policy and Anecdotes

Bitcoin, blockchain and the future of money

While not my area of research, over the past few weeks, I have kept “running” into this topic on and off.  First, and really unexpected, when I invited Ecobank’s London office head Tedd George to talk about Pan-African banking to my MBA class on International Financial Management.  His presentation focused on the usefulness of Blockchain to enable Pan-African platforms, including a new platform within Ecobank for payments across the 33 countries on the continent where it is active. One interesting side benefit is that such transactions no longer have to through correspondent banking and US dollar accounts, which lowers the burden of KYC.

 

Second, I was asked to give a presentation to the Economics Society at the City of London Boys School – not an academic talk, but more focused on putting Bitcoin in the overall debate on money and currencies and making clear that students understand the critical difference between Bitcoin (for me, the 21st century version of Tulip mania) and Blockchain as decentralized and secure platform.  As expected, while I could teach the 6th form students something on economics (well, I have a 30 years head start) there were several student who were lightyears ahead of me when it came to knowledge on the technical aspects of bitcoin and blockchain

 

Finally, a conference on cryptocurrencies and central banking in Kuala Lumpur, this time from the central banks and regulators’ viewpoint.  There was a clear consensus that the current generation of cryptocurrencies such as Bitcoin do not fulfil the functions of a currency (medium of exchange, unit of account, store of value), though future versions that are either issued by central banks or linked to such a central bank backed currency might very well. But is the current generation of cryptocurrencies a threat to financial stability?  No, as currently they are not linked back to the financial system.

 

In summary, blockchain and the idea of encrypted, decentralized payment systems are an exciting idea (and while Blockchain seems to be rather slow, new and quicker systems are being developed I have been told). While the current generations of cryptocurrencies seem to be purely speculative asset classes, the underlying concept is an interesting and an area to be watched.

 

Some additional links:

 

Great and concise recent Vox column on this topic: https://voxeu.org/article/making-some-sense-cryptocurrencies

A BIS piece on cryptocurrencies, which provides a great framework for understanding different forms of money: https://www.bis.org/publ/qtrpdf/r_qt1709f.htm