Central banks clearly are starting to worry about bitcoin. Who needs central banks if technology can produce an “elastic” currency that is determined by the forces of supply and demand?

No wonder that they are trying to understand this Kafkaesque threat to their existence.

The 6/16 WSJ reported, “The Bank of Canada said it is studying the technology underlying the digital currency bitcoin, conducting one of the first known tests by a major central bank about how it could use the nascent system known as blockchain.”

The 6/7 WSJ included an important article on this subject titled, “Blockchain Technology Gets a Hearing Inside the Fed’s Headquarters.”

It is worth reading. Essentially, it shows that the central bank bureaucracies are likely to respond to the bitcoin threat by controlling it in a way that will create a Kafkaesque world for the rest of us, monitoring every one of our financial transactions.

On June 1-3, a three-day symposium in Washington, D.C., the 16th annual International Conference on Policy Challenges for the Financial Sector, brought together central bankers from around the world, and its theme this year revolved around Fintech.

The first day was devoted to blockchain technology -- the software that runs the digital currency bitcoin -- and its prospects.

Adam Ludwin, CEO of Chain, presented a paper at the conference titled “Why Central Banks Will Issue Digital Currency.”

He claimed it will result in a truly transparent global financial system. “Soon, the phrase ‘cross-border payment’ will make about as much sense as ‘cross-border email,’” he said in his presentation.

Essentially, the blockchain offers what he called a “new medium” for money, a sort of digitized bearer instrument.

Ludwin emphasized that this kind of network would allow central bankers to monitor all financial transactions on a real-time basis. He said that as a result, “We can answer questions about collateral ownership and rehypothecation that were at root in the run on the system in 2007.”

It also would allow central banks to keep track of the shadow banking system. While comforting on one level, this would give central bankers a disconcerting Kafkaesque (and Orwellian) role in our lives.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.