The joke doing the rounds at last week’s spring meetings of the International Monetary Fund and the World Bank in Washington was that central banks are looking into cryptocurrencies so that their governors have something to say when they go to conferences and are asked about bitcoin.
Okay, it’s not that funny. But it says something about how nervous central bankers are about the brave new world of cryptos. Since cryptocurrencies have gone mainstream, there has been a deluge of speeches and research papers from the world’s top supervisors over the role of digital currencies and the regulatory questions they raise, columnist Ferdinando Giugliano wrote for Bloomberg.
It’s clear that the cross-border nature of digital currencies means coordination on the regulatory front is required; but there is little consensus over how to do this.
Central bankers generally agree with one another that privately issued cryptocurrencies such as bitcoin and ethereum aren’t set to replace traditional currencies. This consensus was well-summarized in the recent IMF’s Global Financial Stability Report, which noted how cryptocurrencies are still far from fulfilling the three textbook functions of money.
“While they may serve as a store of value, their use as a medium of exchange has been limited and their elevated volatility has prevented them from becoming a reliable unit of account,” IMF researchers wrote.
Regulators also agree that, while they need to keep a watchful eye on cryptocurrencies, there are much bigger things to worry about. The likes of bitcoin still represent only a tiny share of the global financial system: Their total market value has grown exponentially, but remains less than 3% of the combined balance sheet of the world’s four largest central banks.
But the central banker consensus breaks down when it comes to how to regulate cryptocurrencies. Of course, the banks are still far from the moment when one of the world’s largest central banks chooses to adopt a digital currency. And monetary policymakers have well-established channels of communication, which have proven very effective during the financial crisis and other moments of turmoil.
But it’s clear already that it would be far better if countries came up with shared ideas rather than going it alone. It would make for duller panel discussions at conferences, but a more resilient financial system.
