Central Banks and Cryptocurrencies : Centre for Financial Regulation and Innovation - White Paper

Broby, Daniel and Baker, Samuel (2018) Central Banks and Cryptocurrencies : Centre for Financial Regulation and Innovation - White Paper. University of Strathclyde, Glasgow.

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Abstract

This paper set outs the challenges that Central Banks face from the increasing use of cryptocurrencies as a medium of exchange and money transmission. Traditionally, Central Banks control the money supply. They have not, however, devised away to control the issuance of cryptocurrencies. Such digital tokens are a cross border phenomena, typically created by the private sector. Their immutable nature and lack of regulatory oversight has seen them increasingly being used to replace fiat money. This is important because Central Banks are responsible for both monitoring the money supply and maintaining their ability to control it. We categorize how Central Banks can react to this phenomenon through moral suasion, interpretation, regulation, licenses and prohibition.We suggest that one way for Central Banks to maintain their oversight of the money in circulation is to develop a cryptocurrency wallet that can hold secure balances centrally.We further suggest that these could be tied to a sovereign issued cryptocurrency.