Monday 20 August 2018

Central banks wary of cryptocurrencies as Bitcoin surges

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Stock image

Eric Lam

Eight years since the birth of Bitcoin, central banks around the world are increasingly recognising the potential upsides and downsides of digital currencies.

The guardians of the global economy have two sets of issues to address. First is what to do, if anything, about the emergence and growth of the private cryptocurrencies that are grabbing more and more attention. The second question is whether to issue official versions. Here's how the world's largest central banks see the issues:

US: Privacy worry

The Federal Reserve hasn't been overtly enthusiastic about the idea of a central-bank issued answer to Bitcoin.

Jerome Powell, a board member and the chairman nominee, said earlier this year that technical issues remain and "governance and risk management will be critical". Powell said there are "meaningful" challenges to a central bank cryptocurrency, that privacy issues could be a problem, and private-sector alternatives may do the job.

Euro Area: Tulip-like

The ECB has repeatedly warned about the dangers of investing in digital currencies.

ECB vice-president Vitor Constancio said in September that Bitcoin isn't a currency, but a "tulip", alluding to the 17th-century Dutch bubble. His colleague Benoit Coeure has warned of Bitcoin's unstable value and links to tax evasion and crime.

ECB President Mario Draghi said this month the impact of digital currencies on the euro-area economy was limited and they posed no threat to central banks' monopoly on money.

China: Conditions ripe

China has made it clear: the central bank has full control over cryptocurrencies. With a research team set up in 2014 to develop digital fiat money, the People's Bank of China believes "conditions are ripe" for it to embrace the technology. But it has cracked down on private digital issuers, banning exchange trading of Bitcoin and others.

Japan: Study mode

Bank of Japan Governor Haruhiko Kuroda said in an October speech that the BOJ has no plan to issue digital currencies, though it's important to deepen knowledge about them.

Germany: Speculative plaything

In a country where lots of citizens still prefer to use cash, the Bundesbank has been particularly wary of the emergence of Bitcoin and other virtual currencies. Board member Carl-Ludwig Thiele said in September Bitcoin was "more of a speculative plaything than a form of payment".

A shift of deposits into blockchain would disrupt banks' business models and could upend monetary policy, Thiele said. Even so, the Bundesbank is studying the application of the technology in payment systems.

UK: Potential revolution

Bank of England Governor Mark Carney has cited cryptocurrencies as part of a potential "revolution" in finance. Carney says technology based on blockchain, the distributed accounting database, shows "great promise" in enabling central banks to strengthen their defences against cyberattack and overhaul the way payments are made between institutions and consumers.

He has nevertheless cautioned the BoE is still a long way from creating a digital version of sterling.

France: Great caution

Bank of France Governor Francois Villeroy de Galhau said in June that French officials "advise great caution with respect to Bitcoin because there is no public institution behind it to provide confidence. In history all examples of private currencies ended badly, "those who use Bitcoin today do so at their own risk," he said.

Russia: Pyramid schemes

Russia's central bank has expressed concerns about potential risks from digital currencies, with Governor Elvira Nabiullina saying "we don't legalise pyramid schemes" and "we are totally opposed to private money, no matter if it is in physical or virtual form". (Bloomberg)

Irish Independent

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