The president of the central bank of the Netherlands has said that cryptocurrencies don’t pose a risk to financial stability at present, but that it is monitoring the industry for “potential risks.”


Still Challenges to Blockchain

Klaas Knot was speaking at the EBF Conference The Evolution of Power in the Netherlands. He was delivering a speech entitled “The Evolution of Power of Blockchain: a Central Banker’s Balancing Act.”

During it, he spoke about blockchain and cryptocurrencies, highlighting the benefits and risks that both can bring to finance.

Talking about the blockchain, Knot noted that there are plenty of opportunities that the technology can bring, and not in the so-distant future. A few examples he notes include diamond traceability and the coffee trade. However, while it’s making headway in finance, it’s doing so at a much slower pace, he adds. Knot said:

The sector’s strict requirements on efficiency and integrity may partly explain this.

Blockchain

Yet, while this is the case, emerging markets stand to benefit from the blockchain. This is particularly seen when it comes to remittance payment costs and low-income countries. Despite this, though, challenges remain for the finance sector, Knot goes on to state, adding:

These technologies will require substantial further development and testing before we see their more widespread use in the financial system.

A few banks experimenting with the blockchain include JPMorgan, with its Interbank Information Network (IIN); the European Central Bank (ECB); the Bank of Japan; and the Bank of Canada, who is studying the blockchain under Project Jasper.

Knot states that, over the past three years, the bank has carried out experiments with the technology. By doing so, it has developed and evaluated four prototypes under project Dukaton. However, while he notes the benefits of the technology, he adds that its efficiency is one of its greatest challenges.

Cryptocurrencies

Crypto Attract Certain Types of People

When it comes to cryptocurrencies, though, according to Knot, they do not constitute as money. Not only that, but he adds that the market hasn’t evolved into the widespread payment system that many had hoped for. Compared to traditional finance, they have a modest financial footprint, he said.

He notes that this is down to the fact that they are used for money laundering and illicit activities. An outdated argument that is often said by bankers. They fail to mention, however, that fiat is often used in money laundering as well. Knot argues:

A system built around circumventing central oversight is bound to attract certain types of people. The anonymity that cryptos guarantee is both a help and a hindrance to their development.

Despite this, he notes the fact that there are risks to traditional finance associated with cryptocurrencies and their rise. While the market isn’t at risk at present, Knot states that “central bankers now have a framework for monitoring these potential risks.”

What do you make of Knot’s speech? Let us know in the comments below.


Images courtesy of Shutterstock.

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