17.06.2024

Microsoft President explains why digital currencies should be created exclusively by central banks

Companies from the fintech niche should not be issuing private digital currencies, according to Brad Smith, President of Microsoft Corporation.

The executive made the announcement during an online conference organized by the Bank for International Settlements (BIS). In his address, the head of Microsoft argued that the money supply should be exclusively under the auspices of governments and central banks. In other words, he advocates keeping the centralization of financial flows in the world in the old hands.

To begin with, we recall that representatives of banks, officials and people in other government positions often oppose full-fledged cryptocurrencies like Bitcoin and Ethereum. The reason for this attitude is that blockchain assets are decentralized and, as a result, deprive bankers and representatives of the state apparatus of control over the financial niche. Still, to conduct transactions in cryptocurrency networks, the approval of the authority from the top is not required, besides, anyone can join the work in the blockchain of coins. And most importantly, assets can be sent anywhere in the world at the same rates.

Against the background of what is happening in the blockchain niche, a separate direction of decentralized finance has emerged, also known as DeFi. Projects in this area create financial services without intermediaries and central authorities. Thanks to them, you can, for example, exchange some asset for another – this is done by decentralized exchanges like Uniswap – or take the required amount in cryptocurrency against a certain collateral.

The popularity of the decentralized finance industry peaked in the summer of 2020, when the tokens of many projects brought huge amounts of money to investors. Then the market crashed, although the developers continue to develop this direction now.

The funny thing is that DeFi products are even less widespread than conventional cryptocurrencies. For example, yesterday Elon Musk urged not to ignore the decentralized finance industry. Apparently, he has already managed to get acquainted with the basics of technology in this direction.

However, the president of Microsoft Corporation is not happy with this situation. He even opposes the creation of financial instruments by someone other than representatives of the country’s authorities.

Who needs private digital currencies?

Only those organizations that defend the common good should control foreign exchange, Smith is convinced. Here is a quote from him, where he shares his own point of view. The replica is provided by Cointelegraph.

I think the world has always benefited from the fact that, over the centuries, control of finances has been transferred into the hands of governments.

Accordingly, he considers any attempts to displace the fullness of power in this matter to be erroneous. This means that it will not support the release of the same stablecoins – that is, digital currencies pegged to the dollar, euro or other fiat. Unless the leaderships of different countries do this.

It is noteworthy that such comments put Microsoft in opposition to Facebook, since the latter is a member of the Diem project. Recall that the launch of Diem took place back in 2019, but then the project was called Libra. It caused quite a stir among financial regulators. Several large organizations have criticized the private digital currency project, arguing that something like this could pose significant risks to sovereign monetary policy.

Under pressure from regulators and governments, the Libra Foundation lost the support of many supporters, and Facebook’s management was forced to urgently change the course of the project. As a result, the full implementation of the original idea did not take place. Well, Libra has become only a semblance of the project that it was supposed to become.

Meanwhile, Germany’s Federal Bank Deutsche Bundesbank has successfully tested a project that combines traditional financial infrastructure with blockchain technology.

Despite the current global rush from central banks to familiarize themselves with CBDC technology, testing by Bundesbank in conjunction with Deutsche Börse Group and the German Financial Agency did not require the release of crypto assets. This means that experts have appreciated the benefits of blockchain without creating a new category of money.

The system under test is based on two software modules that form the link between the internal system of the Bundesbank and the blockchain technology. Instead of creating a token-based system, the bank simply created an interface that initiates a «trigger» meaning that the transaction is complete and money can safely pass from hand to hand.

We believe that the criticism of Brad Smith is understandable, because cryptocurrencies really change a lot in the financial industry – and this is not liked by conservative people. Therefore, they oppose the introduction of new products, which in fact inhibits innovation.

However, it will not be possible to stop the current process of development of blockchain technologies. Especially considering the fact that many projects operate on a decentralized basis based on immutable blockchains. And this protects them from possible blocking and other similar actions on the part of those who disagree. Therefore, in this case, it is easier to come to terms with what is happening and go along with progress.

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