Recently, Governor of the Central Bank of Ireland Gabriel Makhlouf wrote extensively on the topic of central bank digital currencies, cryptocurrencies, and the digitalization of finance. He noted that a digital euro would need to “[remain] fit for purpose as a public good,” but that they must also prepare for a “change in view of the decrease in cash usage and increased digitalization.”
“One of the things that’s interesting about Governor Makhlouf’s blog post is how extensively he introduces the topic, covering both the opportunities and threats of CBDCs and digital currencies more generally. If you look at the writings coming out of major central banks, I think we can view Makhlouf as the gold standard in terms of being able to clearly articulate the issue in a way that the average citizen can understand,” Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges
“[A]lthough we haven’t decided whether a digital euro will be introduced, I think it’s very likely to happen. In my view, it’s not a question of ‘if’ but rather ‘how and when’. To be clear, cash won’t disappear; a digital euro will complement it,” Makhlouf wrote.
“Not only did Makhlouf write that, in essence, he believes that CBDCs are inevitable, but he really laid out the differences between a digital currency and digital financial systems which are currently used, such as online bill pay and mobile banking technologies, while simultaneously explaining the how ‘a digital euro would represent a fundamental shift in the financial architecture…’ I think this is something that gets lost on a lot of commentators, as well as many who hold positions of power in government. So many don’t understand how blockchain technology is truly transformative,” opined Gardner.
Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Over the past twenty years, the company has built technology for the world’s most notable exchanges, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.
“Like many in central banks, the governors aimed to dispel the theory that cryptocurrencies could be a viable currency, but, interestingly, seemed to suggest that they could more accurately be called ‘crypto assets.’ He discussed the drawbacks of crypto assets, including significant energy consumption, but then spent a sizable chunk of his column writing about the benefits of the underlying blockchain technology. I’ve always said that cryptocurrencies are only the tip of the blockchain iceberg. Blockchain technologies are going to be the 21st century equivalent of consumer credit,” opined Gardner.
On the topic of Distributed Ledger Technology, Makhlouf wrote that “[i]t has the potential to reduce transmission costs in the financial system as it could eliminate the need for intermediaries in some transactions. It could also have applications for ‘smart’ contracts, speeding up the specified actions in a contract once the agreed criteria are met. The use of DLT has increased in recent years – it certainly has potential – although it remains to be seen how widespread that will be.”
“In a thoughtful conclusion, the governor made note that the landscape is, indeed, changing and that there must be continued developments in the regulatory framework. Those things are unequivocally true, regardless of the immediate future of a digital euro. Now more than ever, we need leadership from our central banks. We need to bring the industry to the table and create a commonsense way to regulate all digital assets in a way which breeds innovation while offering protections to the citizenry,” opined Gardner.
