Nick Szabo, the well-known cryptographer and precursor of Bitcoin, speaking at the Israel Bitcoin Summit, said that in the future it is possible that some Central Banks will collect BTC and store it inside their safes as a reserve currency, instead of gold.
His words on the subject were quite clear:
“There’s going to be some situations where a central bank can’t trust a foreign central bank or government with their bonds for example. One solution that’s been developed is to have the Swiss government hold it for you – that’s not a trust minimized solution. The Swiss government itself is subject to political pressures and so a more trust minimized solution is cryptocurrency. The other problem with gold reserves is that they’re physically vulnerable. When the Nazis conquered countries in Europe, the first place they went to was a central bank’s gold reserves“.
The subject is of great interest at a time when safe haven and certified value assets in which to invest are really limited.
Over the past year, equity values have often seen a sharp decline in countries, such as Germany, normally considered safe, and in the same way, the government bond markets have seen very high volatility: just consider the situation of the spread on the Italian Btp.
More and more frequently, if you want to secure a store of value you have to accept negative real interests, as happens, for example, with German or Japanese bonds.
So, if you need a store of value, cryptocurrencies can be an alternative, perhaps within a diversified portfolio.
At the same time, we should ask ourselves what is the function of the reserves within a Central Bank.
The time when paper money was guaranteed by reserves in gold, securities or other precious metals has long since passed, it was almost a century ago and even the last weak link, the Bretton Woods agreements that guaranteed at least partial convertibility, have no longer been valid for more than 40 years.
The function of gold in the reserves of the Central Banks is somewhat symbolic, so much so that the Bank of Italy has 2452 tons, but, for example, the Reserve Bank of Australia only 80.
Besides, the value of gold is anything but stable (Macrotrends data):
As we can see, the value of gold since 1980 has experienced price volatility relatively comparable to that of BTC, having gone from a minimum, below 400 dollars per ounce (about 30 g), to a maximum above 2200.
This is to show that the gold based store of value for Central Banks is minimal.
Instead, government bonds or the currencies stored as part of the reserves have often finalities that are either operational for the banking system, are tied to operations on the open market, or related to reasons of national security.
Thus, a Central Bank may have no need to hold digital currencies, unless, for example, it decides to intervene in the stabilisation of its price or has no operational needs towards the banking system.
The issue of virtual currencies issued by central banks could be different since they would only be copies of value on a blockchain, over which the central bank already has control, but with different characteristics.
Let us remember that Nick Szabo is one of the most important figures who led to the development of Bitcoin.
His idea of Bit-Gold, with the first implementation of a PoW algorithm, makes him one of the essential figures in the path that led to the birth of virtual currencies.