Cryptocurrencies are new barbarians at the gate of central

When the cryptocurrency Exio Coin starts a round of fundraising on Sept. 7, its founders say the unit will come with a unique distinction: the first to be endorsed by a sovereign nation.

The identity of the government backer won’t be revealed until October, and Bloomberg News has no way of verifying the claim of support. According to co-founder Sunny Johnson though, the supporter is one of "the world’s richest countries" on a per capita basis.

The claim of official approval highlights how the boom in cryptocurrencies and their underlying technology is becoming too big for central banks, long the guardian of official money, to ignore. From speculative betting to trading solar power, digital money is proliferating.

Bitcoin -- the largest and best-known digital currency -- and its peers pose a threat to the established money system by effectively circumventing it. Money as we know it depends on the authority of the state for credibility, with central banks typically managing its price and/or quantity. Cryptocurrencies skirt all that and instead rely on their supposedly unhackable technology to guarantee value.

If they don’t get a handle on bitcoin and their ilk, and more people adopt them, central banks could see an erosion of their control over the money supply. The solution may be in the old adage, if you can’t beat them, join them.

The People’s Bank of China has done trial runs of its prototype cryptocurrency, taking it a step closer to being the first major central bank to issue digital money. The Bank of Japan and the European Central Bank have launched a joint research project which studies the possible use of distributed ledger -- the technology that underpins cryptocurrencies - for market infrastructure.

The Dutch central bank has created its own cryptocurrency - for internal circulation only - to better understand how it works. And Ben Bernanke, the former chairman of the Federal Reserve who has said digital currencies show "long term promise," will be the keynote speaker at a blockchain and banking conference in October hosted by Ripple, the startup behind the fourth largest digital currency.

Russia, too, has shown interest in ethereum, the second- largest digital currency, with the central bank deploying a blockchain pilot program.

In the U.S., both banks and regulators are studying distributed ledger technology and Fed officials have made a couple of formal speeches on the topic in the past 12 months, but have voiced reservations about digital currencies themselves.

Source: Bloomberg Pro Terminal

Jr Trader Ivan Ivanov

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