Tuesday , December 12 2017

What central banks say about cryptocurrencies

SALT LAKE CITY, UT - APRIL 26: A pile of Bitcoins are shown here after Software engineer Mike Caldwell minted them in his shop on April 26, 2013 in Sandy, Utah. Bitcoin is an experimental digital currency used over the Internet that is gaining in popularity worldwide. (Photo by George Frey/Getty Images) ORG XMIT: 167708036

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.

Following is an overview of how the world’s largest central banks (and some smaller ones) are
approaching the subject

USA: privacy worry
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. Jerome Powell, a board member and the chairman nominee, said earlier this year that technical issues remain with the technology 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 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.

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.
Japan: 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.

Germany: ‘speculative
plaything’

In a country where lot of citizens still prefer to pay in 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.

UK: potential ‘revolution’
Bank of England governor Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance. The central bank started a financial technology accelerator last year, a Silicon Valley practice to incubate young companies.
Carney says technology based on blockchain, the distributed accounting database, shows “great promise” in enabling central banks to strengthen their defences against cyber attack and overhaul the way payments are made between institutions and consumers.

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.

India: 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 RBI has a group studying whether digital currencies backed by global central banks can be used as legal tender.

Canada: asset-like
The Bank of Canada’s senior deputy governor, Carolyn Wilkins, who is leading research on cryptocurrencies, said that cryptocurrencies aren’t true forms of money.

South Korea: crime watch
The Bank of Korea’s focus has been protecting consumers and preventing cryptocurrencies from being used as a tool of crime. Deputy Governor Shin Ho-soon said this month that more research and monitoring was needed.

Russia: ‘pyramid schemes’
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.”

Australia: monitoring closely
The Reserve Bank 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.

Turkey: important element
Digital currencies may contribute to financial stability if designed well, Turkish Central Bank governor Murat Cetinkaya said in Istanbul earlier this month. Digital currencies pose new risks to central banks, including their control of money supply and price stability, and the transmission of monetary policy, Cetinkaya said.

Netherlands: 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.

New Zealand: considering future
The Reserve Bank of New Zealand, once a pioneer on the global stage with its early introduction of an inflation target, said it’s considering its future plans for currency issuance, and how digital units may fit into those strategies.

Morocco: violating law
Representing one of the more stringent reactions, the country has deemed that all transactions involving virtual currencies as violating exchange regulations and punishable by law. Cryptocurrencies amount to a hidden payment system, not backed by any institution and involving significant risks for their users, authorities said in a statement this month.

Bank for International Settlements: can’t ignore
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. One option is a currency available to the public, with only the central bank able to issue units that would be directly convertible to cash and reserves.

— Bloomberg

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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.

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