Everybody knows bitcoin now: the currency that that started this whole cryptocurrency mania of the 21st Century. The same crypto that now sits at over 16,000 USD per coin within a space of less than a decade of existence. The same cryptocurrency that has seen an almost 2000 percent growth as at the time of writing of this article. Yeah everybody know bitcoin. The success of bitcoin has gained so much attention that even some countries are thinking of introducing their own cryptocurrencies, and one of these countries is Australia. It is not like bitcoin is the only cryptocurrency there is, there are quite a number of them (Ethereum, Litecoin, Ripple) and even new ones are springing up daily. This is because no one is really restricted from making new cryptocurrencies.
The Aussies may have a very good sense of humour, but this is definitely not one of those instances where they are using it. The Australian government is considering the prospect of creating its own cryptocurrency which at the moment is unnamed. A couple of months ago Bitcoin looked like a dead end but now it has left everyone in awe.
Electronic Australian Dollar
On December 13, 2017, Australia’s Reserve Bank governor, Philip Lowe, said that the bank was planning on introducing its own cryptocurrency after having closely studied the world’s digital currencies. This is meant to be a digital version of the Australian dollar. As wild and extreme an experiment as this may be, the Bank’s reason for venturing into such dangerous waters sounds rather interesting.
The electronic dollar would be money that’s held in electronically instead of a bank account. The only thing you do is to own a wallet app on your phone or tablet or iPad in order to cash in or out. You could send to others or have them send to you or to transact businesses. The difference over here is that the money you own will not be transferred from known banks to others but transfers will be anonymous. This also brings up a downside because since your transactions are not recorded, money could be lost or even stolen due to anonymity. One would also raise the concern of security.
This digital currency sounds like a good idea so far. The Australian Reserve Bank has somewhat decided not to go with it for the time being, and its reason is a bit disturbing: that a digital Australian dollar could really affect Australia’s banks.
Creating an electronic Australian dollar will cause a run on banks. You could go see the old movie “Mary Poppins” if you do not really know what a bank run is. But in lay man’s terms it is when everyone hurriedly rushes to the bank to get their monies out of there as a result of panic of panic. Philip Lowe has actually admitted to the possibility of a bank run should the Reserve Bank decide to introduce its own digital currency.
Bank runs are very unpleasant situations because banks cannot refund all the money of their depositors at a go. Of course we know that banks do not just hoard the monies that come to them but rather invest them to make more profit, thus a run on banks is going to be very catastrophic and disrupting to business transactions. The governor of the bank said
“If we were to issue electronic banknotes, it is possible that in times of banking system stress, people might seek to exchange their deposits in commercial banks for these [electronic] banknotes. In other words, it might be easier to run on the banking system. This could have adverse implications for financial stability.”
Just How Safe Is It
The other side of the coin however is that if digital currency is going to be a lot better than having your cash with the banks, isn’t there a risk of people raiding banks for their cash to invest in other cryptocurrencies even if the Reserve Bank does not make its own. The governor however gave a possible reason why this wouldn’t happen explaining that people want assets that are backed by the government in times of crisis. Since primarily, all bank accounts in Australia are guaranteed by the government, which is in itself backed by a hefty $400 billion dollar yearly budget. This budget is also backed by the ability to make people pay their taxes or end up in jail – something no other digital currency has so far.
How safe is this eCurrency going to be?
Even though no digital currency may be as safe as that of a country itself, one can still not be so sure of safety when it comes to cryptocurrencies in general. Especially when cryptocurrencies happen to be changing so fast and are very volatile. Lowe however did not rule out the possibility of people looking to other avenues that provided payment services aside the banks. He said
“If financial institutions do not respond to customers’ needs, others will,”
We all know that Bitcoin is not perfect. For instance transaction fee is rather higher recently with some people paying up to almost $20 per transaction. Now should people have an alternative to Bitcoin that doesn’t have the shortcomings of bitcoin (before bitcoin is able to resolve them) they could be won over to it. It is only a matter of time before people cause bank runs as they switch to cryptocurrencies in the near future, either that of the Reserve Bank or some other “in times of banking system stress”.
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