World Economy

CBs Exploring Use of Blockchain

Billionaire George Soros says the term cryptocurrency is a misnomer, because a lack of stable value precludes it from being a currency at all
CBs Exploring Use of BlockchainCBs Exploring Use of Blockchain

More and more central banks are continuing to explore the use of blockchain and digital currencies.

Calls are growing for authorities, including central banks, to step in and regulate the market for digital tokens, which has seen wild price swings and a series of heists as well as a rapid proliferation in the number of coins on offer, news outlets reported.

The world’s largest central bank chiefs are expected to discuss the matter at a G20 meeting in Buenos Aires in March.

Since the start of 2018, Bitcoin has suffered a massive price crash after its stratospheric growth last year sparked concern among central bankers.

International Monetary Fund chief Christine Lagarde is the latest economic chief to wade into the argument, saying cryptocurrency regulation is “inevitable”.

Bitcoin’s price slumped more than 55% since its December high of $19,982 and has been partly blamed on countries that are beginning to introduce cryptocurrency regulations.

Some of the most outspoken countries are India, South Korea and China.

Ponzi Scheme 

The head of the Bank for International Settlements last week has blasted bitcoin as "a combination of a bubble, a Ponzi scheme" and, due to the energy consumption required for mining it, an "environmental disaster", Forbes reported.

Calling for more regulation, Agustin Carstens, general manager of the BIS, warned that cryptocurrencies could become "parasites" on the financial system and argued that they must be held to the same standards as other banking and payment services, Reuters states.

Forbes further cites Carstens as saying that cryptocurrencies should not be allowed to undermine trust in central banks. He argued that the consequences of debasing this trust have historically been detrimental, referencing the 19th century production of currencies by private banks as a cause of financial turmoil that subsequently brought about the creation of the Federal Reserve System.

He also claimed that cryptocurrencies are "not sustainable as money," adding that they fail to meet the "basic textbook definition" of a currency. The volatility of cryptocurrencies, the BIS chief went on, is tolerated mostly by those "who massively evade taxes or launder money."

Not Yet Safe

The President of the European Central Bank Mario Draghi was also questioned on the sector. He noted: "Blockchain is an innovative technology that could improve efficiency. We are assessing whether it could be used in our own services in the future." 

Concerning bitcoin and whether one should trust it, Draghi advises caution, as it is not backed by any central bank or government, adding that "it is not the ECB’s job to regulate it".

Draghi pointed out that the value of bitcoin had oscillated much more wildly than that of the euro and that cryptocurrencies were not backed by any public institution. He added blockchain, the distributed ledger technology used to record bitcoin transactions, was “quite promising” and expected it to bring “many benefits”, citing its possible use to settle payments.

He cautioned, however, it was not yet safe enough for use by central banks. “We’re very interested in this technology but it’s still not secure for central banking and therefore we need to look through it and investigate it more,” he said.

The ECB and the Bank of Japan have been looking into using blockchain for financial market infrastructure for over a year, reporting in September “promising results” but “no direct conclusion” for its practical use.

Billionaire George Soros made similar assertions last month, saying that the term "cryptocurrency" is a misnomer, because a lack of stable value precludes it from being a currency at all.

India's Finance Minister Arun Jaitley during a budget speech on February 1 said: Bitcoin and other cryptocurrencies have a complicated relationship in India because although they are not technically banned, they are not considered to be legal tender by financial institutions.

For and Against

Last week, a top government Chinese based think tank noted that central banks should consider using digital currencies. This is the way the world is moving, and central banks globally understand that, they need to keep up to date. The key is efficiency now days and this area is something in which can help to improve their respective payment systems.

But the Chinese government is reportedly moving to block domestic access to overseas websites that offer services for cryptocurrency trading and ICO investments.

A report from Financial News, a website tied to the People's Bank of China (the country's central bank), indicates that authorities there are stepping up a crackdown that began roughly a year ago.

Comments from the governor of the Bank of Canada, Stephen Poloz, speaking to CNBC said: "We will start using digital currencies sooner rather than later. The issue is that the adoption is not as simple as it sounds".

Qatar's central bank has warned banks and other financial institutions not to trade in bitcoin or any other cryptocurrency, according to financial sources and a circular seen by Reuters.

The central bank said it "politely requested banks and exchange houses in the country not to deal in any way with this currency, or exchange it with another currency, or open accounts to deal with it, or send or receive any money transfers for the purpose of buying or selling this currency."

The central bank will impose penalties under existing legislation in the event of any violation of the circular, it added.

Veerathai Santiprabhob, governor of the central Bank of Thailand, has asked all banks in Thailand to stay away from cryptocurrency, Reuters reported Tuesday.

The central bank released a circular Monday that bans banks in Thailand from investing and trading in crypto, as well as participating in and creating exchanges and platforms for crypto trading. The circular applies specifically to banks, not to exchange or offer other services, which are still allowed to operate freely in the country.

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