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ANZ NZ chairman John Key says retail and central banks should use cryptocurrencies to improve the payments system in the face of competition from giant tech companies

Currencies / news
ANZ NZ chairman John Key says retail and central banks should use cryptocurrencies to improve the payments system in the face of competition from giant tech companies
John Key speaking on the NZ Initiative webinar.

ANZ NZ chairman John Key says retail and central banks need to seize the opportunities presented by cryptocurrencies or risk being left behind.

Speaking in an online event hosted by the think tank, the NZ Initiative, Key said cryptocurrencies can make the payments system more efficient.

He made the case for the traditional monetary system evolving, particularly in the face of competition from giant technology firms.  

“I can’t tell you where Amazon and Facebook and these guys are going to end up,” Key said.

“But what I can tell you is, they could easily become part of a very globally integrated system - not only just for purchasing goods and services, but within the payments for that.

“You already saw Facebook test that. In the initial instance that didn’t work out so well.

“But… there’s a lot of money there and a huge amount of volume, and I just think over time that space is going to change dramatically and banks are going to have to adapt. If they don’t adapt, their income streams are going to fall.”

Key noted the Reserve Bank of New Zealand (RBNZ) is consulting on whether it should issue a digital currency.

The RBNZ’s rationale is that a central bank digital currency (CBDC) would “both support the value anchor role of central bank money, and support the ability of central bank money to act as a fair and equal way to pay and save”.  

The RBNZ has also made the case, “[A] CBDC and its ecosystem (including the distribution model) have the potential to act as a catalyst for innovation and competition in the wider money and payments ecosystem. This could bring improvements to domestic payments’ efficiency and resilience, as well as enable New Zealand to take part in global initiatives that use CBDCs to improve cross-border payments.”

Key maintained the RBNZ could play a “much bigger role” in this space.

“I think central banks increasingly could issue their own cryptocurrencies - and if not issue them, certainly be supportive of them,” he said.

“Payments are almost the new black for banks. In the old days payments were sort of ‘a thing that we did’. Nowadays, payments are a highly valuable source of revenue and an important part of the system.

“If you start looking around the world at some of these new technology companies - Airwallex is one example of that - they can make payments at a fraction of what the banks can…

“If you send money overseas… then it’s both expensive and it’s clunky and it’s difficult. Cryptocurrencies can, and almost certainly may be legitimately, a very important way of world payments becoming much cheaper and far more efficient.

“On top of that, they allow a fractional ownership and fractional play that you don’t get through normal currencies.”

ANZ NZ currently has no direct exposure to cryptocurrencies.

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56 Comments

Nowadays, payments are a highly valuable source of revenue and an important part of the system

Read between the lines: "cryptocurrencies risk making payment systems redundant, so banks need to position themselves ahead of the curve in this space if they want to retain the ability to clip the ticket on payments, and maintain those record profits they've been posting."

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Oh dear, is that the kiss of death for crypto?

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Nothing wrong with crypto, as long as you're right when you assume that someone else will pay more for it than you did. There may be intrinsic value in all new innovations. The trick is to be right on what that is. A similar case in point:

It definitely feels to us like a bubble....a lot like the late 90s, where just adding ‘dot com’ to the name added to the IPO value. Today we have a similar situation with adding ‘EV’ .....Rivian has a good product, but....at this stage of their development have no business going public.”” (Telegraph, today)

A sceptic might suggest that "This sort of thing, crypto and EV, happens when you make the value of money 0% and create oodles of the stuff for no good reason except to sustain the unsustainable", and I'm not sure 'joining the party' is going to help one iota.

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Plenty of good crypto tokens providing real world value and providing holders an income stream from staking. No need to ever sell if you are a long term thinker. Also plenty of absolute crap and scams to take your hard earnt dollars if you're not careful.

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You could be right. But don't underestimate the ability of The Banks to react, as any business does to a competitor.

If what John Key is suggesting above develops, 'they' The Government and The Banks have lost patience with a competitor(s) to the Legal Tender System, and are about to assert their dominance in that role. How much will Rivian shares be worth when GM produces trucks faster, better and cheaper? What they float at, or is the GM risk built into that price? And, likewise, what will Dogecoin etc be worth when The Banks do something similar in the crypto space? I guess we're about to find out.

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Its not a competitor to banks, it just another trade they think they can clip the ticket on. I'm yet to notice anywhere I've been that had crypto of any flavour as part of their payments system...   

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Never heard of the country of El Salvador...??

 

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Reading not your strong point huh?

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Name one the provides real world value, I don't disagree it provides people with income stream, just like speculating in housing provides people with income streams, but actual value apart from selling it on to the next sucker, not at all convinced.

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He's no mug. I recently cancelled my credit card (wow some air points I can do nothing with) and now use my crypto card. Money from wallet/exchange to crypto card, brilliant.

When I liquidate all my crypto in the next month or two I will be keeping a significant sum in crypto earn schemes earning between 6-14% . Why would I want it in a bank earning between 1-2%.

"but its risky" - ok boomer. It is, but no more than a NZ bank with some shitty deposit insurance scheme. Spread the risk across 5 or 6 platforms, many are insured and US based so they are no fly by night companies.

"but rates that high are impossible" - ok boomer. You have been conditioned by the banking industry to accept shit term deposit rates for decades and accept the narrative they need to be attached to the OCR. Banks can pay higher rates they just choose not too. Just because there is a better alternative you do not understand, doesn't mean its impossible.

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"but its risky" - ok boomer. It is, but no more than a NZ bank with some shitty deposit insurance scheme. Spread the risk across 5 or 6 platforms, many are insured and US based so they are no fly by night companies. [my emphasis]

Understand MF Global etc and you will realise the US is a country infested by racketeers up to the highest level of control.

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Absolutely. My point was the companies doing it aren't based in some third world country, so there is _some_ legitimacy to them.

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A Story for you!

Back when dinosaurs roamed the Earth - the 1980's - many countries had Fixed Exchange Rates and Currency/Trade Controls. You had to apply in advance to get approval to do pretty much anything. So.....

The clever market players in Australia developed an unregulated private market, called the Foreign Currency Hedge Market, that completely circumvented the RBA control mechanisms. Basically, market players - about 80 of them - eventually traded trillions of dollars worth of notional exchange rate contracts, for the US$/A$ , and settled the differences at maturity with simple payment based on the RBA fixed exchange rate of the day.

The RBA tolerated that for several years until they realised they'd lost ultimate control of the currency, and they'd have to do something to close down what was un-closedownable, (in the market's opinion!) So what did they do? They floated the US$/A$ exchange rate and abolished Exchange Controls, and the raison d'être of The Hedge Market evaporated - overnight (a weekend, actually!). The Hedge Market had an RBA overseen orderly wind-down of the next year or two, and disappeared entirely. In effect, the RBA took over the Unregulated, Private Market. Sound familiar?!

The moral of this story? Many people lost an absolute fortune on The Weekend of The End; an end no one saw coming. IS that what's ahead of us in the crypto space - something we can't see coming? Is a Gold Market 1933 upon us? Everything, even 'crypto' has been done before if we chose to see it.

 

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Thanks for posting this! It is an interesting one for sure. I'm in two minds. Firstly, history does suggest they will fight it to the death as you suggest above. Secondly, it is snowballing at an incredible rate and the following quote comes to mind "First they ignore you, then they laugh at you, then they fight you, then you win." It seems they are beginning to realise this and will soon all want a piece of that sweet sweet pie.

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The only way Bitcoin becomes obsolete is if all the central banks in the world suddenly decide to become fiscally responsible and stop printing money out of thin air and start paying of their debt. 0% chance of that happening. 
No, not everything Crypto has been done before. Bitcoin is the first, and only meaningfully decentralised, ability to have actual digital scarcity. And the real innovation is, no one can confiscate your coins off you if you hold the private keys. Its not like Executive order 6102 where the USA made it illegal for private citizens to hold gold There is no centralised place where the Bitcoin are kept, so you cant put a guard at the bank door to take everyone's Bitcoin when they try to withdrawal it. There is no way for governments to stop it, and the ones who adopt it early with benefit significantly in the future. 

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All money is, Or needs to be, is a method of exchange. A common ground by which we measure the exchange of goods and services.

To me, early crypto adoptors view these new form of currencies as a means to itself. 

But The cryptos themselves don't have any value aside from what we speculate. They are measured in value by all other currency (just like everything) And I don't see how at a base function (method of exchange) it is any better than my nzd based bank accounts. High risk returns aside (which is just a risk return assessment using any currency) 

Owning a crypto is never going to replace gaining capital worth via owning a business, or property, or farmland, or things that produce energy. Things that actually provide goods and services we need to survive.

The issues today re fiat sustainability and money printing etc are just messed up due to how they have been used and manipulated. But be in no two minds that If ever cryptos become dominant as a battering system they would in the course of time be equally subjected to the same regulations and manipulation. Perhaps even more so.

At the end of the day, it doesn't matter what shiny coin you use. My investment portfolio will be the thing you are measuring in value. You can live in one of my rental homes, you can grow food in some of the companies I own shares in. You can't do either with bitcoin. 

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But The cryptos themselves don't have any value aside from what we speculate.

Righto.. time to do some research bud.

Owning a crypto is never going to replace gaining capital worth via owning a business, or property, or farmland, or things that produce energy.

I have gained 7 figures this year alone in crypto. Why would I want to own a business, or property, or farmland, or things that produce energy? Investment is about making money so these routes of capital growth you suggest would be poor in comparison in my situation.

My investment portfolio will be the thing you are measuring in value. You can live in one of my rental homes, you can grow food in some of the companies I own shares in. You can't do either with bitcoin. 

No. Sounds like you are trying to cope here. Crypto made me money so I can buy a house and not live in a rental and buy food. Your thesis is one of a boomer.

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My original comment was saying it's not a better alternative to our current exchange system and is just a speculative investment.

Your response just reinforced my views and should serve as an interesting point for new investors seeking information.

Sure maybe you did make 1,000,000 off crypto this year. I'm not saying don't buy it. But When I say it's not a replacement for our current payment systems you have come back with "but look how much money I've made".

I'm not arguing it's continued inflation is not real. There are lots of investment choices that have netted huge returns in the last few years. But for the average person, making that kind of money via buying altcoins is not achievable. And in no way is it a daily replacement for nzd. 

If I was being cynical I would also point out that for people to make 7 figure returns on bitcoin, it requires a steady stream of new players buying into the hype and supporting the price. Your comments to me are akin to a RE lobby group telling new mortgage FHBs that house prices never ever go backwards. 

Personally Im happy avoiding playing currency. And very happy for your success, It just bugs the shit out of me when people trying to argue that bitcoin is the 2nd coming of jesus when it's nothing but currency/commodity speculation.

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There is a bit to reply to here but I'll keep it short - weather is too good to pass up right now :D

But When I say it's not a replacement for our current payment systems you have come back with "but look how much money I've made".

Na. If you look at what I quoted it was in response to you saying that "Owning a crypto is never going to replace gaining capital worth via owning a business, or property, or farmland, or things that produce energy." In my case and many others it has 100% replaced owning these. Bitcoin in particular is a poor choice for every day currency replacement.

If I was being cynical I would also point out that for people to make 7 figure returns on bitcoin, it requires a steady stream of new players buying into the hype and supporting the price. Your comments to me are akin to a RE lobby group telling new mortgage FHBs that house prices never ever go backwards. 

In previous comments I have stated it all works in cycles and there will be a bear market after this bull run.. of course prices go backwards. Figure them out, make bank.

people trying to argue that bitcoin is the 2nd coming of jesus when it's nothing but currency/commodity speculation.

It might not be the second coming of jesus, but it is the single best performing asset in history and best inflation hedge ever invented by man kind. It is FAR more than speculation, if you want in depth info, watch some of the interviews with Michael Saylor.

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Nice.

Although I would like to note that Bitcoin is actually the best digital asset to use for day to day transactions. Just need more lightning network adopters, El Salvador is leading the way :) Rome wasn't built over night. 

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Fair point!

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They are measured in value by all other currency (just like everything)

That depends. I still think 1 BTC = 1 BTC. Whether it can be sold for 1 million Kiwi pesos is beside the point. Also, what I do know is that there will only be 21 million of these (actually less given that coins have been lost). Furthermore, those who own 1 or more whole BTC are among the top 10% of BTC owners. That's right 90+% of Bitcoin addresses hold < a single Bitcoin. 

So the value of the BTC is much deeper than its value in fiat currency. And this is the attitude many non-BTC owners do not understand. Even if the price dropped 50% tomorrow, I'm not selling. And many are others will not be selling. Because if you sell, you're losing your stake in this limited pool. In fact, I accumulated more the other day. The fact that the price in USD is higher than 90% of the time, I don't care. 

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Which crypto card are you using?

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Wirex. Worked great thus far.

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Does it automate tax calculations? I think every transaction being a taxable event makes using crypto for day to day transactions highly impractical in NZ. 

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No it's just a payment card. The tax part really isn't as hard as people make it out to be in all honestly, plenty of automated solutions.

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Right. Cryptos have already become a near $4 Trillion market. Bitcoin has already become TBTF. I read that the next floor of USD60k for Bitcoin has already been achieved. Governments/Central Banks/MS Banks will have to get in on the act to protect their turf. Look at China, it has issued eRenminbi and is slowly throttling the private cryptos. It aims to be the sole player one day and may succeed. Then it will be a real competition of the Paper USD. America and other Western countries better wake up and get their act in place quickly. Key is right and I hope his speech influences the 'powers that be' in a right manner.

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This is partly what I think people dont get.  Why would a govt adopt a cryto they cant control vs just creating a new one out of thin air and pushing people towards it..

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@Fluffybunny great question..

You ask 'why a government would adopt a crypto they cannot control', instead of "control" I'd suggest a more apt word is "print".

Remember, crypto currency was the reaction to the moral hazard of bank bailouts. Banks were constrained in their 'money printing' till 1971, when the gold standard was dropped. Since 1971 faith in and the value of fiat currencies have steadily declined - rightly so as fiat isn't backed by gold.

Everybody knows gold has been financialized and given its physical form is inadequate for retail/payments. Therefore it would be almost impossible for the public to de-financialized gold through retail usage (demand) and re-establish a gold standard [sound money].

Bitcoin has re-established sound money, aka Bitcoin itself. Banks might have to start holding Bitcoin reserves and Central Banks think twice about continued-money-printing. Let customers hold NZD and BTC and switch between the two - the El Salvador model. That might be their only hope.

Banks are playing with fire. They might simply print themselves out of business. The likes of Afterpay are already eating their lunch; n00m.. n00m..

Banks already operate digital currencies that are controlled by them. Obviously these currencies are controlled in such a way as to benefit the chosen.. in NZ that's property investors and landlords. Given extreme asset-price-inflation [yes house prices] people will naturally demand hard money, aka Bitcoin.

Asset owners [yes home owners] only look at the handful of percentage points the CPI produces, yet other people in NZ are experiencing a lite form of hyper-inflation.

Should have managed your economy better?

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Bitcoin is TBTF you say. Who do you think would step in and save its value if it crashed? Certainly not any Government.

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Used my Airpoints at Mitre 10 before they started expiring. Got $30 off with mine when you spend over about $80. 

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I was interested in your commentary but dismissed it is childish crap when I got to the ok boomer bit. 

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Pity that a bit of humour offends you. Oh well :D

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Making inaccurate jokes rarely does someone trying to spread information favors.

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okay but remember to pay your income tax on all those purchases and on the mass liquidation as well.

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The invention of the Otto engine was revolutionary since its conception in the 1800's. That however doesn't mean that the boy racer's car next door is worth more than a few dollars.

The technology in block chain is valuable but its products may not. Neither bitcoins, dog coins, cloned dog coins are worth anything other than the next fool who would pay more than the previous.

Even if we were to bid up gold bullions to the moon, at least gold has real world uses in which there is no real substitutes.

The idea that something is rare means its valuable doesn't hold water. My dog puked last night (first time ever) trying to chew a possum, is that puke now worth a few grand?

The amount of energy wasted on trying to adopt and sustain blockchain computations cannot be justified both economically nor environmentally.

The whole idea of adopting more technology to generate higher efficiencies in banking may result in not just banking job losses but even less oversight; then an even less handful of people can execute a macro financial decision without number of people in the chain to raise red flags or put up road blocks. Is that where we want to go?

While we are at it, do you think it's a good idea that central banks also issue NFTs?

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You are indeed correct in saying that gold has a real world use case, in electronics for example. But there are a number of goods that have a monetary premium included in their price that is above their intrinsic value. These include real estate, gold, fine art, diamonds, silver etc. People allocate a relative premium above the actual intrinsic value based on how scarce they think this good is, and how well it will preserve its value in the future. Because you can hold Bitcoin digitally for no cost, and there is 0, I repeat 0, counter party risk, it is the most pristine collateral in the world. You know that if you hold your private keys, no one else in the world has any claim over your Bitcoin.

Because of these facts and many others, Bitcoin will strip the monetary premium off of all but a few items, and even then it will take the vast majority of it. So why would anyone hold gold of which its physical properties are actually a hinderance, when you can hold Bitcoin? Golds price will fall closer to its actual value. If technology accounts for 8% of golds use case, than the other 92% is monetary premium. So that is only 880b$USD of the 11T market cap. Say it removes half of the monetary premium that would bring the price down to $972/Oz. humans value scarcity, and gold was the scarcest good back in the day, so naturally we gravitated towards using it as a store of value. Those days are long gone, gold just doesn't know it yet :)  

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Nothing about the energy underwrite.

That's not just the underwrite of blockchain, it's the underwrite of the activites like 'currency trading' - which are just parasitic on other's activities.

Financial 'trading' already is many times bigger than real (physical) trading, in that light bitcoin and fiat-issuance have the same problem; they are ignorant of what they can be cashed-in for. That requires both availability of resource stocks, and availability of future energy. If either (or both) of those are absent, or just in decline, then the 'cashed in' potential is less than the held proxy.

All artificial, unlinked-to-reality tokens have this flaw. Comparing two of them misses the point.

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Thats the point, Bitcoin is linked to reality through the purest form, energy. Have a read:
https://www.swanbitcoin.com/bitcoins-energy-usage-is-not-a-problem-here…
Or a listen:
https://podcasts.apple.com/us/podcast/lyn-alden-bitcoins-energy-usage-i…

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Its a waste of energy, not a store of energy, once used its not recoverable.  Its not a good thing at all.

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If you havent done any research into Bitcoin, then not matter how little energy it uses, it will always be a waste from your perspective. Good thing we have a free market where people can allocate money depending on how they view it individually. The energy usage is a rounding error, less than .1% of global energy production. and even that is a broad statement because a significant amount being used is stranded energy that has no way of getting to a market.  

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Wow, you're right up there with the NZ only produces 0.5% (or whatever the number is) of CO2 emissions so we shouldn't do anything crowd.  Significant stranded renewable energy huh?  I find that hard to believe.  And if its not renewable, then its even worse, those coal/oil powered generators could simply be shut off. 

Energy used to produce no useful output should be reduced to the bare minimum, and bitcoin is nowhere near that level.  

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Go read the article, all your points are addressed. 

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Money is NOT a tool primarily for spending. This is NOT the most important feature nor primary purpose of money and is NOT why money has value. You do NOT use money when you spend it on a ham sandwich.

Money is a tool primarily for saving. This is the most important feature and primary purpose of money and is why money has value. You begin using money when you save in it and you cease using money when you exchange it for a ham sandwich.

This is why Keynesians and midwits with limited cognitive ability do not and will never see the value of Bitcoin. In their limited minds spending is what is important and this is why they go on and on about nonsense metrics like GDP. Bitcoin is not especially well suited for transacting, certainly no more so than existing monetary options. This is a problem Bitcoin does not solve better than any of its currently available competitors. So when I listen to a podcast where someone is talking about how they bought an Egg McMuffin in El Salvador with Bitcoin and it "worked very well" it becomes clear they are blind to the real value proposition of Bitcoin. This is not a problem Bitcoin solves.

Bitcoin's strength aligns with the true though often overlooked primary purpose of money--saving. Instead of saying "I used Bitcoin to buy some McNuggets and it worked really well!" a Bitcoiner with a correct understanding of money would say "I used Bitcoin as a savings vehicle for the past 5 years and didn't get rekt by the inflation that hit everyone else. Bitcoin worked really well!" Home prices have doubled in the last 5 years? That's a problem for people saving in an inferior money but it is not a problem for Bitcoin savers. Housing prices have dropped by about 90% for those saving in Bitcoin.

It is only when you realise the important function of money is to save that you will realise Bitcoin will inevitably replace every other form of money because it meets this need better and more efficiently than any other market option. The other stuff people are focusing on simply do not matter. If Bitcoin had a bug in its code that caused an interdimensional portal to open where by a crazy green leprechaun came out and punched anyone in the face every time they made an on-chain transaction, then Bitcoin would still be the best money and would still supplant the world's existing inefficient monetary systems.

You're welcome

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Great post!

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no, it's a spruiker's post and it misses the problem

"and you cease using money when you exchange it for a ham sandwich."

Even before bitcoin et al, there was MORE MONEY floating around expecting ham sandwiches, than there were ham sandwiches. Much more money. Truckloads more.

And every day, there are less sandwiches.

 

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Money is a tool primarily for saving. 

Yes. You get it. And your perspective has more value that that of Lord Key IMO. He doesn't seem to get it at all and is only thinking from an institutional POV. The ANZ doesn't exist to preserve the value of your savings; it exists to grow debt obligations through money creation. It doesn't grow the value of its customers savings; it dilutes the value and purchasing power of those savings. 

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“If you start looking around the world at some of these new technology companies - Airwallex is one example of that - they can make payments at a fraction of what the banks can…

Airwallex has nothing on the likes of Ripple on technology for cross-border payments. Lord Key is simply talking his own shop and interests. If he wants to be taken seriously on crypto, he needs to show that he's done his homework and use examples that demonstrate that. 

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Speaking of the unexpected....

Are ~$20 billion worth of Tesla shares going to be sold into the market on Monday morning (or whenever)?

Elon Musk proposed selling 10% of his Tesla Inc. stock  and took a poll of people on the social network to see if they supported it. Musk, the world’s richest person cited recent discussion of the wealthy hoarding unrealised gains to avoid paying taxes.

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To my mind the value of Tesla stocks is an indication the investment world has gone mad. From what I can gather Tesla is apparently worth more than all other automobile manufactures combined.

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He’ll buy bitcoin with it lol

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Only if he can stand up to the ESG person/ state who is controlling him. 

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Key said cryptocurrencies can make the payments system more efficient.

No they cannot at least not with proof of work systems, it is by design, right in the name, you need to do work in order to do a transaction. A bitcoin transaction is 400,000 times less efficient than a visa transaction. The only reason international transactions cost much is because banks can get away with it. Why does transferring $1,000,000 cost more than transferring $1? They probably cost the bank less than 1 cent yet they get away with charging a percentage because they can.

Don't get me wrong I am all for a crypto currency that is efficient, not in the control of banks or governments, but the inefficient speculative nonsense, that enables crime that the current crypto currencies are not for me.

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Have you heard of the lightning network? 

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It really makes these sort of people, such as with Nassim Nicholas Taleb, who try to discredit Bitcoin while blatantly ignore the layer two scaling solutions, absolutely irrelevant. 
Always happy to provide resource material for the ones who actually want to educate themselves :) 

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I agree with Sir John here. If you can't bet them, join them! But it seems odd, that the current official position of ANZ is the complete opposite. 

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