A Decade of Quantitative Easing Has Paved the Way for the Age of Digital Currency

Through a radical policy of "Quantitative easing" introduced to counter the "Zero lower bound" problem in interest rates, the central banks of the U.S., the euro zone, and Japan have added almost $10 trillion in assets to their balance sheets since the end of 2009.Given that massive surfeit, nothing else mattered much to financial markets.

As Bank of America chief strategist Michael Harnett put it in a recent research report, "We enter the next decade with interest rates at 5,000-year lows, the largest asset bubble in history, a planet that is heating up, and a deflationary profile of debt, disruption, and demographics."

While the decade of QE might seem like the ultimate expression of central bank power and influence, the next decade may produce the opposite: a reversal that reveals central bankers' impotence.

More likely than bitcoin becoming the new global monetary standard, I'd say, is that it becomes digital gold.

The biggest, most important developments in finance right now - namely, the digital currency aspirations of central banks such as the People's Bank of China and the European Central Bank, as well as the Libra project launched by Facebook - trace a direct line to bitcoin and its crypto imitators.

The protocols behind these new fiat-backed digital coins will, for example, create digital scarcity, meaning that, like cryptocurrencies, they can function as a de facto form of cash or bearer instrument.

If digital fiat currencies become commonplace for payments, they'll eventually remove banks for that core function of economic exchange, relegating them to longer-term lending functions.

If coin-to-coin atomic swaps and smart contract-based escrow solutions are used in cross-border transactions, the rise of digital fiat might quickly spell the end of the dollar's dominance of global trade, with profound implications for the United States.

The upshot of all this is that central banks will initially acquire even more direct control over monetary conditions.

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