[Cryptography] Our leader opines on cryptocurrencies

Phillip Hallam-Baker phill at hallambaker.com
Sun Jul 21 15:47:47 EDT 2019

On Sun, Jul 21, 2019 at 11:50 AM John Levine <johnl at iecc.com> wrote:

> 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
> reserves.
> 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.
> https://www.btcwires.com/c-buzz/blockchain-saved-25-in-forex-trading-for-hsbc/

I sense something of a US-centric bias here.

To understand the attraction of a global currency, you really have to be
one of the people whose native currency isn't USD. The point is pretty
clear then.

Don't get me wrong here, this is not going to upend the international
finance system or anything close. It is an incremental development whose
significance is probably on the order of the switch to 4K TV at the very
most (i.e. important for the industry affected but not dramatically so).

That said, I expect Libre to have infinitely more significance than all the
rest of the crypto currencies combined because almost nobody actually uses
them for anything of consequence (that is legal).

The technology does not have to be at all complex at this point. Doesn't
even need to involve a hash chain of any type.
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