MODERN FINANCE
Show Me The Money
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By Philip Dudley he loves me, she loves me not, she loves me, she loves me not.
Digital currencies are loved by some and not loved by others. They’re loved by those who desire autonomy, decentralization and digitalization while reviled by most governments and central banks for the same reasons.
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On July 14, digital currencies received a loving kiss from the European Central Bank (ECB) as it launched the digital Euro project.
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Christine Lagarde, the highlyrespected president of the ECB, stated, “Our work aims to ensure Philip Dudley that in the digital age citizens and firms continue to have access to the safest form of money—central bank money.”
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And so, on the one hand, the ECB is tipping its hat to acknowledge digital currencies. Conversely, they are making it very clear they don’t want to lose control of the money.
October 8 · December 3 · January 14
Basically, this is a validation of the digital currency ecosystem. It’s not going away folks. And if that’s the case, there are three silos to focus on.
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First is decentralized cryptocurrency like Bitcoin or Ethereum that can be exchanged for goods and services. They are not issued by a central bank but rather a network. The blockchain certifies transactions by uniquely logging each transaction. This is called distributed ledger technology. Second, stablecoins peg their value against an existing store of value like the U.S. dollar, gold, oil or maybe even fine art. All are logged on the blockchain. And third, there is central bank digital currency (CBDCs) which represents a sovereign nation’s fiat currency. The ECB is telling the world that it’s worried about decentralized finance and now is getting in the game. What would CBDCs look like for the Federal Reserve? Unlike our current electronic payment system called the national automated clearing house (ACH), the Fed would have to create a new system or “rail.” These rails are the plumbing of our banking system, with the established ACH network controlled by commercial banks. The Fed, as the counter party, could effectively develop a digital network for CBDCs which theoretically could be better and faster. And so, ask yourself the following question. How do you want an institution to show you the money? I guess the term “check please” has taken on a whole new meaning.
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Country ZEST & Style | Autumn 2021
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