Here’s a utopian image (or perhaps dystopian, depending on the point of view) to ponder: Central banks have switched from issuing money in the form of cash to releasing digital currency and registering transactions on a distributed ledger along the lines of the Bitcoin blockchain. Because it doesn’t require much of an up-front investment — the clearance and transaction recording system is decentralized — the central bank is now able to do something it has never done, namely accept deposits from private citizens, providing an ultimate safe haven for their savings and making private banks, with their fractional reserves and the danger of runs, largely unnecessary.
If this ever came to pass, it would spell the end of banks as we know them. We wouldn’t need them to receive salaries or buy food in the supermarket; we’d use our central bank accounts and smartphones for that. Bankers would still be able to attract deposits by offering higher interest rates, and they’d still be able to obtain money to lend out on open markets, but their business would become riskier, and it would target clients with a higher tolerance for risk. Borrowing would also become more expensive.
It can be nice to imagine the much-derided banking industry unmoored from our daily needs, left to scramble for business like other non-essential industries. Of course, our transaction histories would be much more visible to governments than they are today .
This imaginary world of effectively socialized money is being seriously discussed by researchers and central bankers alike. In a new paper , Max Raskin and David Yermack of New York University talk about it as a distinct possibility, albeit a radical one that "carries significant risks for the rest of the financial system." In March, Bank of England Deputy Governor Ben Broadbent discussed the idea […]
