Cryptocurrencies are new barbarians at the gate of central banks

When the cryptocurrency Exio Coin starts a round of fundraising on September 7, its founders say the unit will come with a unique distinction: the first to be endorsed by a sovereign nation.

The identity of the government backer won’t be revealed until October, and Bloomberg News has no way of verifying the claim of support. According to co-founder Sunny Johnson though, the supporter is one of “the world’s richest countries” on a per capita basis.

The claim of official approval highlights how the boom in cryptocurrencies and their underlying technology is becoming too big for central banks, long the guardian of official money, to ignore. From speculative betting to trading solar power, digital money is proliferating.

Digital money proliferating

Until recently, officials at central banks were happy to watch as pioneers in the field progressed by trial and error, safe in the knowledge that it was dwarfed by roughly $US5 trillion ($6.3 trillion) circulating daily in conventional currency markets.

But now as officials turn an eye toward the increasingly pervasive technology, the risk is that they’re reacting too late to the pitfalls and the opportunities presented by digital coinage.

“Central banks cannot afford to treat cyber currencies as toys to play with in a sand box,” said Andrew Sheng, chief adviser to the China Banking Regulatory Commission and Distinguished Fellow of the Asia Global Institute, University of Hong Kong. “It is time to realise that they are the real barbarians at the gate.”

Bitcoin – the largest and best-known digital currency – and its peers pose a threat to the established money system by effectively circumventing it. Money as we know it depends on the authority of the state for credibility, with central banks typically managing its price and/or quantity. Cryptocurrencies instead rely on their supposedly unhackable technology to guarantee value.

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Source: Cryptocurrencies are new barbarians at the gate of central banks | afr.com