CBs Change Cryptocurrency View
Eight years since the birth of bitcoin, central banks around the world are increasingly recognizing 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 emergence and growth of the private cryptocurrencies that are grabbing more and more attention—with bitcoin now surging toward $10,000. The second question is whether to issue official versions, Bloomberg reported.
Bitcoin is showing no signs of slowing down, blowing past $9,000 less than a week after topping $8,000 and now quickly closing in on five big figures.
Following is an overview of how the world’s largest central banks (and some smaller ones) are approaching the subject:
The European Central Bank has repeatedly warned about the dangers of investing in digital currencies. Vice President Vitor Constancio said in September that bitcoin isn’t a currency, but a “tulip”—alluding to the 17th-century bubble in the Netherlands. Colleague Benoit Coeure has warned bitcoin’s unstable value and links to tax evasion and crime create major risks.
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, Germany, S. Korea, US: Study Mode
Bank of Japan Governor Haruhiko Kuroda said in an October speech that the BoJ has no imminent plan to issue digital currencies, though it’s important to deepen knowledge about them. While in a country where lot of citizens still prefer to pay in cash, Germany’s Bundesbank has been particularly wary of the emergence of bitcoin and other virtual currencies.
The Bank of Korea’s focus has been protecting consumers and preventing cryptocurrencies from being used as a tool of crime. The Federal Reserve’s investigation into cryptocurrencies is in its early days, and it hasn’t been overtly enthusiastic about the idea of a central-bank issued answer to bitcoin.
UK & France: Playing Caution
Bank of England Governor Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance. He says technology based on blockchain, the distributed accounting database, shows “great promise” in enabling central banks to strengthen their defenses against cyber attack and overhaul the way payments are made between institutions and consumers.
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.
India & Morocco: Not Allowed
India’s central bank is opposed to cryptocurrencies given that they can be a channel for money laundering and terrorist financing. Nevertheless, the Reserve Bank of India has a group studying whether digital currencies backed by global central banks can be used as legal tender. Currently, the use of cryptocurrencies is a violation of foreign-exchange rules. Representing one of the more stringent reactions, Morocco has deemed that all transactions involving virtual currencies as violating exchange regulations and punishable by law.
Brazil & Canada
The Banco Central do Brasil sees “no immediate risk for the Brazilian financial system” but remains alert to the developments of the usage of those currencies, it said in a statement this month. The Bank of Canada’s senior deputy governor, Carolyn Wilkins, who is leading research on cryptocurrencies, said in an interview this month that cryptocurrencies aren’t true forms of money.
Russia & Australia: Monitoring Risks
Russia’s central bank has expressed concerns about potential risks from digital currencies, with Governor Elvira Nabiullina saying “we don’t legalize pyramid schemes” and “we are totally opposed to private money, no matter if it is in physical or virtual form.” The Reserve Bank of Australia is closely monitoring the rise of digital currencies and recognizes the technology underpinning bitcoin has the “potential for widespread use in the financial sector and many other parts of the economy,” head of payments policy Tony Richards said last month.
Netherlands, Scandinavia, NZ: Most Daring
The Dutch have been among the most daring when it comes to experimenting with digital currencies. Two years ago the central bank created its own cryptocurrency called DNBcoin—for internal circulation only—to better understand how it works. Presenting the results last year, Ron Berndsen, who was in charge of the project, said blockchain may be “naturally applicable” in the settlement of complex financial transactions.
Like the Dutch, some Nordic authorities have been at the forefront of exploring the idea of digital cash. Sweden’s Riksbank, the world’s oldest central bank, is probing options including a digital register-based e-krona, with balances in central-database accounts or with values stored in an app or on a card. The bank says the introduction of an e-krona poses “no major obstacles” to monetary policy.
The Reserve Bank of New Zealand, once a pioneer on the global stage with its early introduction of an inflation target, said Wednesday it’s considering its future plans for currency issuance, and how digital units may fit into those strategies.
The central bank for central banks has said that policy makers can’t ignore the growth of cryptocurrencies and will likely have to consider whether it makes sense for them to issue their own digital currencies at some point. “Bitcoin has gone from being an obscure curiosity to a household name,” the BIS said in September. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Privacy could also be a concern.