In a document that it has recently published to its website, the Bank of Spain has concluded that cryptocurrencies could bring huge advantages to managing monetary policy – provided, the report states, that they are issued by central banks.
Authored by Galo Nuño, a member of Banco de Espanã’s Dirección General de Economía y Estadística who was handed a remit for looking into the “principle motivations for which a number of central banks are currently investigating the potential consequences of introducing such instruments,” the report specifically focuses on the “potential consequences and implications” of digital currency for managing banking reserves, monetary policy and general financial stability.
“Tread with Caution”
Nuño highlights the ability of digital currencies to offer a wider range of creative mechanisms for managing the general money supply, particularly for reigning in the amount of money in circulation in the real economy when this option is largely unavailable for paper-backed money.
Central banks can and do print new money to increase supply but only rarely implement policies that seek to reduce it. But with blockchain-based mechanisms, the author notes, the range of secure options available, particularly for those managing general interest rates, also broadens.
However, given that the territory is plainly a new one for traditional banking institutions, he notes, it would be best to tread carefully.
As more and more central banks take note of the rise of the cryptocurrency phenomenon, others have not failed to notice the irony of banks lauding praise for blockchain-based currencies.
Bitcoin itself is believed to have been inspired, at least in part, by crypto-anarchists deeply critical of controversial monetary policies pursued by central banks through what many perceive to be an undemocratic model of governance.
Bitcoin’s so-called genesis block contains some meta-data making reference to a headline from the front page of UK daily The Times on January 3rd 2009 which ran with the headline “Chancellor on brink of second bailout for banks.”