Warburton to Newsmax TV: Central Banks May Get Involved With Digital Currencies Soon

Thursday, 06 Mar 2014 06:16 PM

By Dan Weil

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Central banks may well enter the digital currency space before long, says Peter Warburton, director of U.K.-based Economic Perspectives, an economic consulting firm.

"They must realize that challenges like bitcoin will just keep on coming, and they'll come in more persuasive and credible ways," he told John Bachman on "America's Forum" on Newsmax TV.

"It's fair to point out that even with today's very low interest rates, there's something very attractive about having your own currency and, basically, those bills that we carry around with us don't pay any interest at all," he said.

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"It's free money for the issuing body and so this is a privilege that central banks want to hang on to."

Given the bitcoin's woes, it could be on its way out, Warburton says. But "the concept is a good one and we'll just have to find a better model."

Why the need for a digital currency in the first place?

"It's because we've lost confidence and trust in the central banks. However, there is an institutional aspect of trust behind it," Warburton said. "Somewhere it has to be part of the equation."

Bitcoin exchanges tend to be based outside the United States, because those places have embraced the concept more enthusiastically, Warburton says. "Obviously there's an aspect of safety in the financial system, and the banking system here has kind of resisted getting involved."

With a digital currency there's always a risk of malfeasance, he says. "Whenever you are dealing with the means of payment and purchasing power, then you create an enormous incentive for deception," Warburton said.

"Back to the issue of trust, maybe somebody got inside Mount Gox. I don't know the full story, but the problem is here that the requirements of a stable currency were not met in this case. And I suppose there will always be an aspect where something, somebody has to be a repository of trust."

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