Blockchain in Spain: how Banco de España is an exception compared to other Central Banks

Vivian Hendrikse
 
Following several news items in the past week concerning Blockchain in Spain, it becomes clear that the Spanish Central Bank has an opposing strategy for the up-and-coming distributed ledger technology (DLT) involving cryptocurrencies than most other Central Banks. In what way does the Banco de España (BDE) differentiate itself? What are the consequences of this for both Spain, as well as the general development of how banks see cryptocurrencies and the blockchain? This article serves to provide answers to these questions.
 
Though believing in the underlying blockchain technology, most Central Banks (including the European Central Bank, ECB) have expressed concerns regarding cryptocurrencies, as a specific part of the blockchain[1]. They argue that, though cryptocurrencies offer a wide range of new opportunities (for example in securities settlements mechanisms) operational challenges and complexity issues are of unknown size and, therefore, highly risky [3]. Consequently, the majority of the Central Banks do not (yet) shape clear regulations and standards that provide an outline for the technology to further develop in the market as much as they ideally should [1].
 
Several Central Banks or governments have initiated research in the field and thereby have undertaken an important first step. These include the Bank of Canada, Bank of Japan, Sveriges Riksbank and the ECB [1]. Only few, however, have openly committed to blockchain and to developing regulations around it. A great example of one of these is the Monetary Authority of Singapore (MAS), who started a blockchain experiment in November 2016 as a “road to regulatory understanding” [4]. Still, the MAS, just as the other “openly committed” central organisations, does support cryptocurrencies. It merely acknowledges and explores its opportunities, while remaining to distrust crypto. And then there is the Banco de España. The BDE recently published a report (link) in favor of both cryptocurrencies and the blockchain, stating that they could have a positive impact on the Spanish economy [2]. The argument in the report is made by Galo Nuño, the Direct General of Economy at the BDE, and poses that the blockchain technology and a hypothetical “Central-Bank-Issued Digital Currency (CBDC)” could help track the country’s money supply. This introduced concept of the CBDC is a new type of cryptocurrency, one that is established by government regulation and controlled by the Central Bank itself. Even though the BDE mentions that further investigations are needed, the statement of a nation-wide organization implying that “Central Banks should consider implementing cryptocurrencies” is exceptional. The next step for Nuño is to further explore the consequences of his ideas and demonstrate that the usage of cryptocurrencies can be positive for a Central Bank [2].
 
What are the outcomes of the support for cryptocurrencies by the BDE? What could be the positive impact of this CBDC in the Spain, and for the blockchain technology in general? The answers to these questions are, of course, speculative. First, the concept of the Central Bank’s digital currency must be further developed and researched, which means that the implementation is not guaranteed. Nonetheless, the improvements for the Spanish economy are expected to include a more stabilised financial infrastructure and an improved management of interest rates [2]. Furthermore, the report of the Spanish Central Bank encourages other organisations in Spain to develop blockchain innovations. Spain is recently moving fast towards cryptocurrency adoption [2], which clearly coheres with the supporting standpoint of the Central Bank. Second, the impact of the BDE’s report for development of cryptocurrency regulations and strategies at other banks in general is also of a positive kind. Spain’s support of cryptocurrencies is inspirational, and can stimulate other central banks (and governments) to reassess their distrust in crypto and more actively pursue cryptocurrency and blockchain opportunities. The results of this refreshing approach by the Banco de España are thus far positive ones.
 

Sources:

[1] Oliver Thew (March 29, 2018), Central Banks Must Adapt to Blockchain, OMFIF. Available Online (link) [Last Accessed: 21.08.2018]
[2] Ian Tozer (August 9, 2018), Spain’s Central Bank: Cryptocurrency Could Improve Monetary Policy, Bitcoinist. Available Online (link) [Last Accessed: 22.08.2018]
[3] Annaliese Milano (March 27, 2018), Central Banks Say Blockchain Shake Securities Settlement, Coindesk. Available Online (link) [Last Accessed: 23.08.2018]
[4] Darryn Pollock (February 20, 2018), Singapore’s Government Blockchain Experiment Is a Road to Regulatory Understanding, Cointelegraph. Available Online (link) [Last Accessed, 22.08.2018]