Bitcoin: the suits move in

From The New York Times (Oct 11th 2016) via Marginal Revolution: "Central Banks Consider Bitcoin’s Technology, if Not Bitcoin".

"Bitcoin was created by libertarian-minded programmers with a deep suspicion of central banks and the national currencies they issue.

"Yet it is central banks that are doing some of the most ambitious work of late in trying to harness the technology introduced by Bitcoin.

"The central bankers do not want their institutions to own or use Bitcoin itself. Instead, they hope they can use the decentralized method of record-keeping introduced by Bitcoin — known as the blockchain or distributed ledger — to complete and record transactions in the real economy more efficiently, quickly and transparently.

"The most enthusiastic central banks — including the Bank of England and the People’s Bank of China — have discussed issuing their national currencies onto some sort of distributed ledger, a name that comes from the concept of several parties keeping records simultaneously.

"Blockchains allow several players to keep a shared spreadsheet using cryptography and so-called consensus mechanisms that provide a way to agree on which transactions happened at what time.

"For the central banks, the promise of the technology is that it would allow them to track every pound or renminbi on every step of its travels through the financial system in real time — something that is impossible now. The goal would be to make the financial system more transparent, fast, efficient and secure.

"If the central banks succeed, it would be one of the greatest unexpected twists in new technology: An invention aimed at dethroning central banks and making it harder for money to be tracked instead ends up empowering those central banks and making money more easily traceable.

"The Bank of England has produced several research papers on the topic. One suggests that the economic benefits of issuing a digital currency on a distributed ledger could add as much as 3 percent to a country’s economic output, thanks to the efficiency it could offer."

Inter-bank settlements and a means to ensure "a financial system that does not go down even if the central bank’s computer systems are temporarily taken offline," seem to be important drivers.