10 Reasons Why Central Banks Will Miss the Cryptocurrency Renaissance

 

I find this very interesting and wanted to share the top Reasons why central banks will miss the Cryptocurrency renaissance. 

1. Workforce of the past

Central banks will need to attract and retain fresh talent that will  enable them to deal with the new openness and transparency demands, as  well as digital transformation and the increasingly complex global  world. 

2. Slow decision-making

Decision-making in central banks is like wading through treacle – decisions take months because of numerous layers of hierarchy. Working groups need to compile voluminous and detailed documents that  need to be reviewed and signed by all parties before they can proceed  to the heads of departments or the deputy governors. 

3. Too few technologists and innovators

Academics, economists and big-picture thinkers excel in central  banks. The academics ponder on conceptual issues and the economists make  interpretations from data, whereas the policy makers and regulators  mull over the cause and effect of promulgating laws. However, technologists are generally not part of the discussion when it comes to policy and economic decisions for currency. 

4. Fear of experimentation

Although some central banks are engaging in experimentation, there is a fear of going from proof-of-concept to pilot phase. This is natural, should a central bank make an error, it may turn out  to be a reputation buster – and reputation is the cornerstone of  central banks. There is also some trepidation that the early regulation  of cryptocurrencies, and associated new technologies, may legitimize  their adoption. 

5. Territorial and siloed thinking

Central banks are similar to conglomerates in that they have a number  of different and distinct departments that require diverse skills and  outputs. These differences make it difficult to approach a new technology and  economic tour de force like cryptocurrency, because it doesn’t fit  neatly into any one of the industrial-style conglomerate domains. To highlight the conglomerate type nature of central banks, the core departments and skill sets are listed below: ADVERTISEMENT 

• Bank supervision: mainly supervisors and regulators who manage banking licenses and audit
• Currency management: manufacturing and logistical planners
• Financial markets: front, middle and back office currency and bond traders
• National payments: a combination of regulators for payments and technical resources running the RTGS system
• Research: mainly economists who produce statistics based reports and input into repo-rate decisions.

6. Buy versus build approach

Most central banks do not have substantial software development  capability. Therefore any new project will have to buy its technology.  There is an acute shortage of central bankers who can explain or use Merkle trees. 

7. Stuck in the status quo

A large portion of central bankers are career central bankers, so the  desire and ability to change are not incentivised. Change is often  considered a threat to staff, and threats are met with jelly-like  stickiness to the status quo. 

8. Incumbent relationships

Banks are licensed to operate by central banks, giving them the ability to create money from customer deposits. The central bank asks the banks to protect depositor's hard-earned  money and to serve as many customers as it can: i.e.  maximizing financial inclusion. The task of banks is therefore to  service a nation's citizens at the behest of the central bank. These relationships and licenses are expensive to buy and will not easily be changed to include new members. 

9. Inter-governmental coordination

Just as the departments within central banks tend to be siloed, so  too are the intergovernmental departments that look at currency matters. They cover treasury, financial intelligence (KYC), financial services  conduct authority, central bank, tax revenue and secret service units.  Each of these units may have different acts and regulations that overlap  cryptocurrencies and ICOs. 

10. International coordination

Internationally the nation-state must get guidance from a multitude  of organisations like the G20 or G7, International Monetary Fund (IMF),  Bank of International Settlements (BIS), Financial Action Task Force  (FATF) and INTERPOL. International coordination often requires prolonged  diplomacy and mismatched agendas. 

Sources: Coindesk.com 

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