Bitcoin gambit

Some central banks are starting to take a good, hard look at blockchain currencies.

The Central Bank of Barbados has recently jumped on the bitcoin blockchain train, the first central bank to do so, reports American Banker. The institution has approved the issuance of digital representations of the Barbadian dollar equivalent to a dollar issued by the bank. Other central banks could follow suit.

The interest is certainly there, as shown by a recent fintech conference co-hosted by the Federal Reserve, the World Bank and the International Monetary Fund. Federal Reserve Chair Janet Yellen, in her opening remarks, prompted central bankers to explore blockchain and bitcoin innovations.

The first attraction of blockchain is its security. Even though the bitcoin blockchain boasts a $US9-billion capitalization that should interest hackers, it has survived for seven years in the “warzone” of the Internet without a single successful attack on its core technology.

Apart from the security advantage, a blockchain currency would give a central bank a big competitive advantage. First, its domestic financial system would suddenly become transnational and transparent, allowing capital to flow in, and erasing the delays, costs and opacity that corporations have to deal with when they transfer money on a global scale. And it could rise to dominate global trade payments.

Following the lead of Barbados, China, the UK and the Netherlands are considering issuing blockchain fiat currencies. As a top Bank of England official said at a London forum in April: “Central banks, just like everyone else, can’t afford to be Uber’d.”