[Cryptography] Our leader opines on cryptocurrencies

John Levine johnl at iecc.com
Sun Jul 21 11:50:43 EDT 2019

In article <CAMm+Lwi72G3vZ9yTGn05JtdvM_7sGZFRzPX7+amzS1QCJ-S1vA at mail.gmail.com> you write:
>It is entirely possible that Libre becomes a reserve currency in its own
>right but it won't happen overnight and if it does happen it will be simply
>because it turns out to be convenient for international companies to use
>for settlements reducing the currency risk on both sides. And if that did
>happen it would likely be through some EFT like structure that is actually
>separate from the exchange system.

But as usual, the economic thing and the blockchain pixie dust have
nothing to do with each other.  If companies want to price
transactions in a basket of currencies, they can do it now, but they
don't because it's not worth the accounting hassle.  The IMF even has
a standard basket called a SDR which is used as a small part of their

Somewhat relevant side anecdote: in years past when interest rates
were higher, I had an account in a treasury bill mutual fund on which
I could write checks.  Unlike a money market fund, the price floated a
little bit each day as rates bounced around, so every time I wrote a
check, I had a small capital gain or loss.  It quickly became apparent
that the hassle and the risk of using it as a transaction account were
not worth the small interest premium over a money market fund.

If I were a large company, I would do each transaction in a single
accounting currency, and hedge the currency risk separately in the
vast and liquid forex market.  That's a lot easier to keep track of
and solves the same problem.

By the way, if blockchain fans want a really interesting application,
look at the forex market.  It dwarfs everything else at $5 trillion
per day, about 1/3 spot transactions and 2/3 various sorts of forwards
and options to be settled later which would seem ideal for smart
contracts.  It's all direct bank to bank, no central clearinghouses,
and the prices can be kind of opaque and open to manipulation.

Some banks are playing with this.  HSBC has a small scale private
blockchain experiment, per the following press release.  Keep in mind
that "billions of dollars" in the forex market is a rounding error.
Wikipedia says HSBC handle 4.6% of major forex currencies which would
be about $230 billion per day, so over more than a year, their
blockchain had handled one day's worth.



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