Will central banks eventually invest in digital currencies? In a recent survey done by a prestigious investment bank, a quarter of those surveyed believe that we are not too far off this foreseeable context. This is surprising to most of us, considering how crypto-currencies are a relatively new asset class as discussed above. However to achieve this “unique” context, where digital currencies start being considered as an eligible asset class among leading central banks, a few step have to be curated cautiously:
Firstly, most leading economies would have to tweak their national laws and regulations, to start accommodating to this “decentralization” of monies from the regulated financial system, and then issue their own digital currencies. Next, in order for this to be effective (and efficient), the currency would have to establish itself in payment and the investment processes. One can only imagine how large a scale of issuance of liquid sovereign or corporate debt denominated in these currencies at the end. After building their reserves with the digital currencies, they can then scale to consider the currencies to be included in their investment portfolio.
As such, central banks reserves and asset allocation frameworks has to inadvertently, be revised thoroughly. In particular, central banks that with extensive and huge gold holdings would be confronted with the decision on what to make with these “legacy” holdings. It is imminent and inevitable that the “crypto world” will continue to experience substantial further developments. It is already evident from a few of them, where their potential might consist of far-reaching consequences for central banks, not only as regulators – as investors. What if we told you that at some point of time, malicious computer programs could have their own wallets which pays for services like Distributed Denial-Of-Service (DDoS) attacks while collecting a ransom completely anonymously? Pretty distressing news, right?
Ultimately, we feel that large and advanced corporations would be revolutionized (as they usually are first-in on technology), perhaps just try to imagine Amazon without management, fully-operated by a program that spreads internationally all over cities, similar to a computer virus, paying people that are selling an item, and charging the purchasers/shoppers, all autonomously via the wallet of the “crypto-company”. The proceeds of these activities, be it legal or illegal activities would be paid in a potentially untraceable cryptocurrency to the holders of the token which could be bought on regulated exchanges (i.e. Coinbase) or on the dark web. So we say that regulators should not and should stop ignoring cryptocurrencies for too long, for the simple reason that it might have been too late when they start reacting and acting. Taxable business transactions and ultimately stored wealth itself would more and more disappear from the regulated financial sector, affecting the role of central banks and how they can be guardians of financial stability. This technology clearly has the potential to shift investment processes and participation in business ventures into unfamiliar territory (at least for now), disrupting and limiting central banks from a regulatory perspective, and also the investing corner.
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*** This report is neither an offer nor the solicitation of an offer to sell or purchase any investment. Comments are based on information obtained from sources believed to be reliable but FIDES ASSETS makes no representation and accepts no responsibility or liability as to its completeness or accuracy.
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