Last week capped off the third and perhaps most important G20 finance and central banking summit yet.
When all was said and done, though, like most regular G20 summits, it amounted to a lot of talk and little action. The kind of posturing and grandstanding that modern politics is infamous for in our modern age.
However, there were at least some interesting insights to glean from the event.
And perhaps one of the more notable titbits came from our own RBA Governor: Dr Philip Lowe.
As Reuters reported, Dr Lowe shared some fascinating thoughts on digital currencies. Because while he still isn’t the biggest fan of the asset class (cryptocurrencies), he did suggest that privately issued tokens are likely better than any offered by a central bank.
In other words, Lowe appears to be backing down from the central bank digital currency (CBDC) arms race we’re seeing from so many other nations. This is a surprising concession given that central banks rely on the centralised nature of modern money supply in order to retain their power.
So has Lowe gone rogue, or is this just a sly way to win over the crypto community?
The CBDC paradox
When it comes to CBDCs, we’re not the biggest fans here at Money Morning.
The issue, as I already alluded to, is the fact that a CBDC isn’t decentralised.
This key difference is what makes regular cryptocurrencies so important. They are purposefully designed to be backed by no key person or group of people. Instead, all the trust is placed in the system itself — the blockchain — in order to make sure it can’t be manipulated for personal gain.
After all, despite what central bankers may think, their motives and actions are never truly impartial.
They are flawed by their bias and own agenda just like we all are. That’s what makes us human!
For these reasons, a CBDC is likely to be no different to the current systems we have in place. Arguably, they could just make things worse, because in a strictly digital economy, the ability to manipulate monetary supply and demand is even easier…
Like I said, though, fortunately for Australia, it seems as though Lowe isn’t keen on this direction.
In his own words:
‘I tend to think that the private solution is going to be better — if we can get the regulatory arrangements right — because the private sector is better than the central bank at innovating and designing features for these tokens.’
It’s great to hear that he is willing to let private projects take the lead. After all, despite some recent scares in the stablecoin scene, the underlying ideas and technology are still exciting and promising.
The only concern is, of course, Lowe’s insistence on the right regulatory arrangements.
It would not surprise me if central bankers or politicians overstepped the mark. Because if you overregulate crypto, then it will simply defeat the purpose of it.
Everything hinges upon how strict Lowe believes they’d need to be.