Mark Carney the Governor of the Bank of England gave a speech as part of the Scottish Economics Conference to address the issue of the Future of Money <http://bit.ly/2t9K85T>, there before our eyes he painted the view of the official Keynesian view of Crypto Currencies. I must say I like Mark Carney, only in the sense that he seems to have no problem in explaining his views clearly and his speech was no exception. Here are some noteworthy quotes from Mr. Carney that paint a canvas of what is to come in the modern financial world:
- Adam Smith. Referring to a picture of the £20 Pound Bank Note he explores its significance"... because it honours Adam Smith, the great moral philosopher of the Scottish enlightenment ... Significant because without money the decentralized exchange of Smith's invisible hand could not operate".
- New Money. Trying to connect with the younger audience he acknowledges they might be more familiar with "electronic forms of money such as debit cards and mobile phones. A number of you may hold other forms of electronic money - crypto or virtual currencies such as Bitcoin, Ether or Scotcoin. And a few may view paper money - even the Bank of England itself - as archaic vestiges of an old centralised order of payments that will soon be swept aside by a digital, distributed future". At this point all that came into my head was Zellwegger's "You had me at Hello", and I was already trying to get hold of Jeff Berwick to book Mr. Carney for keynote speaker at Anarcapulco 2019. But soon everything would dissipate very very fast.
- Taking Sides. "And that's my topic today... Specifically, how developments in money and payments technologies could transform our economy in ways good and bad. And how, for the good of the people of the United Kingdom, the Bank of England is helping to manage the potential risks and to realise the promise of the future of money". Here he clarifies he has taken a side, one he believes should be to pursue the good ways to transform the economy. In the past Mr. Carney has been criticized for taking sides on economic matters based on a political stance: Brexit for example. In his defence I guess he needed to warn the country on the risks before the election, and inevitably people voted. Now the situation is not very different, not only because he is warning of risks but also many people seem to want to opt out of the current system.
- Money as a Social Convention. Quoting Smith's The Wealth of Nations he defines money as that which serves a hierarchy based on three functions: " A store of Value...a Medium of Exchange.... A unit of Account". In that way "We accept a token has value whether made of metal, polymer or code because we expect others to do so readily and easily". He argues then that even though money has taken many forms over time they all have suffered from " a long and sorry history of debasement... (but) with the wisdom from such sad experience, most countries have now settled on centralised, public fiat money backed by robust institutions in order to provide the public with money that is both highly trusted and easy to use". The wording could not be more accurate countries are not making a choice they are excited about they have just "settled", possibly they have because there is no other better alternative...yet.
- The Current Financial System. He argues that a "breadth of institutions" is needed to have good money in its three forms: "money in the form of banknotes issued by Central Banks... electronic Central bank money in the form of reserves that commercial banks hold with us... (and) the electronic deposits that commercial banks create when they extend loans to borrowers, accounting for fully 80% of money in the system". The last form is what deserves some attention even the speech has a footnote citing a paper Money Creation in the Modern Economy McLeay, M., Radia, A., and Thomas, R. (2014) stating the finding that commercial banks create most of the money as they receive deposits when households save and then lending them out through the fractional reserve system.
- The Institutions. He does make a compelling case for the need of different institutions each with a specific role and he details how the BOE has an overall remit set by Parliament and therefore its institutions housed in the BOE are accountable to the people.
- Cryptocurrency Revolution. The Revolution he argues is fruit of the coincidence of technological developments on the one hand and the of the collapse of confidence in the banking system that resulted from the global financial crisis. He then goes to mention the attributes of Cryptocurrencies (Bitcoin) as an alternative to centralised fiat money: A fixed supply and therefore immune to debasement, free from risky private banks, and the anonymous nature of the person holding it free from tax authorities and law enforcement. Also he quotes another attribute directly from Nakamoto (2008) "distributed ledger technology cuts out intermediaries like central banks and financial institutions and allows payments to be made directly between payer and payee." Perhaps the only comment I would make is that Bitcoin is not anonymous at all since the ledger captures every transaction, it is on the other hand pseudonymous since the user would show up with an address and not their name. Most importantly I would say cash/bank notes are far more anonymous than Bitcoin. Mr. Carney labels the spirit of this revolution or movement as that of "dystopian fear and libertarian optimism" as he reminds us of the evidence in Bitcoin's Genesis Block where its hash apparently included an additional text "The Times 3 Jan 2009 Chancellor on brink of second bailout for banks".
For all Libertarian Optimists and those that genuinely applaud the transparency of technocrats, I will let these ideas sink in as we address the rest of the speech in my next piece. Cheers.