Thursday, May 30, 2019

Germany's Central Bank Smashes Arguments For Currency, Securities Settlement Via Blockchain

A Quick Victory Lap For the FT's Izabella Kaminska.

On Tuesday I mentioned: "Meanwhile, Mr. Elder's boss, editor Izabella Kaminska has been seeing naked emperors for the last few years or so."

One of the 'The Emperor has no clothes' manifestations she was pointing out, in the face of unhinged resistance from the blockchain bros., was that settlement and other financial functions had developed  as they had for identifiable reasons and that the attempt to 'disrupt' these functions was actually just overlaying a shiny layer of 'tech' on existing solutions, a disruption that would actually slow and complicate settlements rather than increasing efficiencies.

Here's Bundesbank President (and possibly more importantly  BIS chairman) Jens Weidmann on the results of a test the bank performed, along with commentary by Ms Kaminska.
From FT Alphaville, May 29:

Blockchain officially confirmed as slower and more expensive
Hat tip to Joe Weisenthal at Bloomberg for flagging the following shocker from the Bundesbank on Wednesday (our emphasis):
A trial project using blockchain to transfer and settle securities and cash proved more costly and less speedy than the traditional way, Germany’s central bank president said.
The experiment, launched by the Bundesbank together with Deutsche Boerse in 2016, concluded late last year that the prototype “in principle fulfilled all basic regulatory features for financial transactions.” Yet while advocates of distributed ledger technology say it has the potential to be cheaper and faster than current settlement mechanisms, Jens Weidmann said the Bundesbank project did not bear those out.
For context, here's FT Alphaville, March 19, 2015:
For one, we’re not convinced blockchain can ever be successfully delinked from a coupon or token pay-off component without compromising the security of the system. Second, we’re not convinced the economics of blockchain work out for anything but a few high-intensity use cases. Third, blockchain is always going to be more expensive than a central clearer because a multiple of agents have to do the processing job rather than just one, which makes it a premium clearing service — especially if delinked from an equity coupon — not a cheaper one....

Another of the 'Emperor has no clothes' issues she's mentioned over the years is the tech bro. fantasy of seasteading. Here she rather dryly refers to exit risk:
One of our links from a couple years ago:
A topic of abiding interest. Here's a post from November 2017:

The Financial Times' Izabella Kaminska Examines Seasteading and Is Bemused

More accurately, she comes down on the concept somewhere between bemused and dubious.
We've looked at the idea of islands or ships full of geeks, nerds and billionaire geek/nerds a few times over the years:

Oops that's Brighton Pier by Landscape Photographer of the Year, 2017 finalist Matt Cooper via Geographical.
How embarrassing, the roller coaster should have been a tip-off. 
Here's Izabella. I'll go look for the intended picture.

From FT Alphaville:
On the (non) viability of start-up islands