On "The Future of Money: Digital Currency"

Last week, comments from “The Future of Money: Digital Currency”, a hearing by a U.S. House of Representatives finance committee included: 

• Rodney J. Garratt, Chair of Economics - University of California (Santa Barbara): “The convenience of electronic transfers has led to a decline in the use of cash relative to commercial bank deposits in many countries around the world…. I believe that the [US] Federal Reserve will, at some point in the future, need to respond to the disappearance of cash and I have given some reasons why it might consider offering some form of retail-oriented central bank cryptocurrency. There are, however, many issues related to the viability and security of this technology that need to be fully resolved before adoption."

• Norbert J. Michel, Director, Center for Data Analysis - The Heritage Foundation: “The federal government should not step in and tilt the playing field. It should treat cryptocurrency and all other forms of money neutrally. This means it should not bestow any particular legal advantage on any particular alternative form of money, and that it should remove all legal barriers to using alternative forms of money. … These competitive forces are the forces that push entrepreneurs to innovate and improve products specifically to satisfy their customers. They also expose weaknesses and inefficiencies in existing products. These same competitive forces can and should be used to improve money."

• Eswar S. Prasad - Professor of Trade Policy & Economics, Cornell University and Senior Fellow, Brookings Institution: “There are many potential advantages to switching from physical to digital versions of central bank money, in terms of easing some constraints on traditional monetary policy and providing an official electronic payments system …  New financial technologies—including those underpinning nonofficial cryptocurrencies—herald broader access to the financial system, quicker and more easily verifiable settlement of transactions and payments, and lower transaction costs … but will pose significant challenges in terms of regulation and financial stability.”

• Alex J. Pollock, Distinguished Senior- Fellow, R Street Institute: “As we think about the future of money, which grows ever more digital in its transactions and records, it helps to consider the varieties of money displayed by the past …  Government fiat currencies will operate in increasingly digitalized forms. Still, paper money will retain its advantages of secure privacy, immediate settlement without intermediaries, and the ability to function when the electricity is shut down."

• Vince Molinari, CEO – Templum: “Fintech, including digital assets, have tremendous potential. However, as this technology develops, it is critical for regulators to foster innovation without stifling it through unclear regulations. US and foreign regulators have noted the disruptive potential of Fintech, and in particular blockchain technology. They have also recognized the potential of Fintech to revolutionize the financial services industry.”

OUR TAKE

• Blockchains, cryptocurrencies and other decentralized technologies promise to increase efficiency in finance, health care, supply-chains and more – but they remain at an early stage of evolution.
• Broad adoption will require working with regulators, adapting to competitive forces and solving fundamental problems in a reliable fashion. 
• Note: In the US on-line payment market, Starbuck’s mobile app leads the market because of its superior user experience. Crypto developers need to increase their focus in this area.