A peek into central banks’ views on cryptocurrencies

Bloomberg

Almost nine 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 — both for their volatile price moves and, in the case of bitcoin at least, their introduction on regulated derivatives exchanges. 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:

US 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 Netherlands. Colleague Benoit Coeure has warned bitcoin’s unstable value and links to tax evasion and crime create major risks. President Mario Draghi said in November 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. While there’s no formal start date for introducing digital currencies, authorities say going digital could help improve payment efficiency and allow more accurate control of currencies.

JAPAN: NOT A CURRENCY
Bank of Japan Governor Haruhiko Kuroda said in December of bitcoin that “if it’s a question of whether it’s functioning like currencies as a form of payment or means of settlement, I don’t think it is.” Bitcoin “is being traded for investing or for speculation,” he said. Kuroda didn’t regard it as an “obstacle” for BOJ monetary policy.

GERMANY: INVESTORS BEWARE
In a country where a lot of citizens still prefer to pay in cash, the Bundesbank has been particularly wary of the emergence of bitcoin and other virtual currencies. President Jens Weidmann in December described bitcoin’s move as having a “ speculative character,” though for regulators, “just because investors can lose money isn’t a reason to get involved.” He said “the hurdle for regulatory action is quite high in my view.’’ Board member Carl-Ludwig Thiele said in September a shift of deposits into blockchain would disrupt banks’ business models. At the same time, the Bundesbank has been actively 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.
The central bank started a financial technology accelerator in 2016, 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 defenses 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.” Bitcoin even has a “dark side,” he said, citing data attacks and warning that people who use the cryptocurrency “do so at their own risk.”

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 Reserve Bank of India has a group studying whether digital currencies bac-
ked by global central banks can be used as legal tender.