05 Apr What do central banks think of decentralized cryptocurrencies?
The world’s central banks have wildly differing views on the world of decentralized cryptocurrencies such as bitcoin. These institutions manage the most important economies and their currencies, money supplies and interest rates as well as oversee commercial banking in their respective countries.
Their views and control of the emerging cryptocurrency world are also key. We’ve got a quick summary of these influential views of digital currencies for you based on a recent Bloomberg report.
Two vital cryptocurrency issues
Central Banks face two key issues when it comes to cryptocurrency. First, there is the matter of how to regulate and control cryptocurrencies. With asset value ranging from $400 billion-$800 billion, there’s reason to pay attention to the mostly unregulated trading, exchanges, growth and security of these digital coins.
With high profile incidents such as Japanese cryptocurrency exchange Coincheck’s $530 million-coin theft, multibillion-dollar money laundering and the need to protect investors and consumers, it’s no wonder cryptocurrencies are on the radar of Central Banks.
A second important issue is how cryptocurrencies fit into the monetary and financial infrastructure and whether countries should consider creating their own digital currency. In the case of Venezuela’s Petro, that’s a whole new murky world of monetary policy.
G20: A big picture cryptocurrency view
Last month in Buenos Aries at the G 20 meetings, Frederico Sturzenegger, chairman of the Argentinian Central Bank said, “”In July we have to offer very concrete, very specific recommendations on, not ‘what do we regulate?’ but ‘what is the data we need?’
The G20 issued a statement on cryptocurrency, expressing its concerns and directions for investigation:
“We acknowledge that technological innovation, including that underlying crypto-assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly. Crypto-assets do, however, raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. Crypto-assets lack the key attributes of sovereign currencies. At some point they could have financial stability implications. We commit to implement the FATF standards as they apply to crypto-assets, look forward to the FATF review of those standards, and call on the FATF to advance global implementation. We call on international standard-setting bodies (SSBs) to continue their monitoring of crypto-assets and their risks, according to their mandates, and assess multilateral responses as needed.”
US: Privacy & regulation concerns
The Federal Reserve has only recently started examining cryptocurrency. New Fed Chairman Jerome Powell said in 2017 there are still issues with the technology and “governance and risk management will be critical.” This week, Fed Governor Lael Brainard expressed concern about “volatility.” While the US Fed considers cryptocurrency to be small potatoes now, it does see the need for potential regulation in the future.
Switzerland: Too risky
In the conservative cantons of Swiss banking, Vice President Fritz Zurbruegg said recently, “Would broad access to a CBDC or broader access to digital central bank money have better results than the current monetary system? And would the Swiss National Bank thereby better fulfill its legal mandate? From our perspective it’s a no to both questions.” That sounds like no to us too. And yet, the Swiss Financial Market Supervisory Authority (FINMA) published a set of guidelines for regulation of ICOs on Feb. 16.
EU: Tulips to you
European Central Bank President Mario Draghi said in February the blockchain was “quite promising” and the bank is “very interested” in the technology. But he and other EU bank leaders are cool to cryptocurrency, with opinions ranging widely from disinterest to “tulip bubble” disdain.
China: Strict state control
At the moment, cryptocurrency in China is black and white. There is none. The People’s Bank of China have shut down cryptocurrency trading, stopped bitcoin mining and in March, PBOC’s Deputy Governor Fan Yifei pledged to strictly control all cryptocurrency in the future. China is investigating the possibility of its own digital currency and blockchain technology is being tested in a wide range of applications from finance to food and transportation.
Japan: Edging towards regulation
Japan has suffered two of the world’s largest cryptocurrency thefts, but investors there are still passionately interested in digital coins, despite the obvious risks. Bank of Japan head Yuko Kawai said in January, there is no demand and no plans for a central digital coin. But regulators have moved recently to compel all Japanese cryptocurrency exchanges to be licensed and meet regulatory guidelines for safety and security. A new government Q & A, issued this week, warns consumers about the risks of cryptocurrencies.
South Korea: Stricter controls, protection for investors
South Korea has moved from unregulated status to stronger regulations since last year, and the cryptocurrency crash. It pulled back from an outright ban on cryptocurrency trading after public protests. Bank of Korea Governor Lee Ju-yeol told his Parliament cryptocurrencies are not legal tender, but they require regulation to protect investors and consumers. “The whole world is now framing the outline (for cryptocurrency) and therefore (the government) should rather work more on normalization than increasing regulation,” said Choe Heung-sik, chief of South Korea’s Finance Supervisory Service (FSS),
In February, Bundesbank President Jens Weidmann said, “For a stable monetary and financial system, we do not need crypto-tokens, but central banks committed to price stability and effective bank regulation.” We expect Germany will be anxious to exert control as soon as cryptocurrency looms larger for consumers.
UK: Carney says manage threats
Bank of England Governor Mark Carney, said in March that the growth of cryptocurrency could threaten the current financial system. “The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system,” he said. Ironically, the UK is a hotbed of development of disruptive financial products and services by fintech companies and the government is encouraging these new monetary horizons.
France: Yes and no
Francois Villeroy de Galhau, Bank of France Governor, said in February, “We need to be clear: bitcoin is in no way a currency, or even a cryptocurrency… It is a speculative asset. Its value and extreme volatility have no economic basis, and they are nobody’s responsibility. The Bank of France reminds those investing in bitcoin that they do so entirely at their own risk.”
Then in March, France’s finance minister Bruno Le Maire announced plans for friendly new guidelines on initial coin offerings (ICOs). “France has every interest in becoming the first major financial center to propose an ad hoc legislative framework for companies making an initial coin offering,” he said.
The Netherlands: Monitoring, and open-minded
In 2015, De Nederlandsche Bank created its own cryptocurrency called DNBcoin to test cryptocurrency. In late January 2018, it released a policy paper saying that cryptocurrency is too small to be a threat to financial stability and it is not yet ready for prime time, that it’s “too slow” for payments purposes. “While we do not consider crypto’s as money, we do see the possibilities of the blockchain technology underlying bitcoin. We closely monitor developments in this area and also conduct our own experiments to gain sufficient knowledge.”
Scandinavia: Pondering possibilities
Sweden’s Riksbank says there are no barriers to a digital e-krona and suggests a range of options. Norway’s Norges Bank is also exploring the possibilities of cryptocurrency and blockchain technology saying “An efficient payment system enables payments to be carried out swiftly, safely, at low cost and tailored to users’ needs. While digitalisation increases the efficiency of the payment system, it also poses challenges such as those related to cyber crime and outsourcing.”
Bloomberg reports “Denmark has backtracked somewhat on its initial enthusiasm, with Deputy Governor Per Callesen cautioning against central banks offering digital currencies directly to consumers. One argument is that such direct access to central bank liquidity could contribute to runs on commercial banks in times of crisis.”
India: No way
While the Indian government likes blockchain technology and is encouraging fintech development, it’s February budget was a definite blow to cryptocurrency. It said cryptocurrencies are not legal tender and banned cryptocurrency trading in the country.
Today (April 5), it went one step further when the Reserve Bank of India governor Deputy Governor BP Kanungo banned regulated entities from providing services to any individual or business dealing in digital currencies. Ironically, that hasn’t stopped the Indian government from striking a committee to look into creating its own digital fiat currency in a report due by June.
Singapore: “Never say never”
Ravi Menon, Monetary Authority of Singapore (MAS) managing director, said cryptocurrencies offer “no significant risk to financial stability.” He said MAS does not regulate cryptocurrencies directly, but looks at the activities associated with them, the risks, and tries to “ensure that (it does) not stifle innovation.” He added, “some of the best minds in the field are applying their creative energies to make cryptotokens mainstream.” Singapore is also collaborating with the Bank of Canada in a cross-border payments blockchain system.
Brazil: Enormous risk
Brazil has no plans to regulate cryptocurrency but Ilan Goldfajn, President of Brazil’s Central Bank called bitcoin a “Ponzi scheme” in 2017. Prior to the G 20 meetings, he said “The volatility of this activity, it can increase greatly and it can decrease greatly, there will be no one that can secure that. If anyone is thinking about selling their house to purchase cryptocurrencies, I would say that the risk is enormous.” Brazil may be out of step with its G 20 relatives on regulations.
Canada: It’s an asset
Bank of Canada’s Deputy Governor Carolyn Wilkins, said governments need to work toward a coherent set of consistent, global policies governing cryptocurrencies. She refers to cryptocurrencies as “crypto assets,” rather than currencies because “they do not perform any of the key functions of money.” Bank of Canada has been proactive in studying cryptocurrency and has maintained an open attitude towards a future role in monetary policy.
Russia: Pyramid schemes or payments vehicles?
Initially, Russian central bankers saw cryptocurrency as an uncontrolled and risky Pyramid scheme. At President Putin’s direction, regulators announced plans for strict centralized guidance and control of cryptocurrency trade and technologies at the end of December 2017. On the issue of a central digital currency, Bank of Russia First Deputy Governor Olga Skorobogatova said she “does not think this is advisable from the point of view of the macroeconomics of the population.” She added, “The Bank of Russia is considering the possibility of introducing a supranational digital currency within the BRICS or the Eurasian Economic Union (EAEC).”
Australia: Speculative mania
Reserve Bank of Australia (RBA) governor Philip Lowe has called bitcoin “speculative media” and said it was hard to see bitcoins being used for everyday transactions. “When thought of purely as a payment instrument, it seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions.”
New Zealand: “Not-so-funny moneys”
The Reserve Bank of New Zealand released an analytical note in late Nov 2017 about cryptocurrencies.. This paper called cryptocurrencies “not-so-funny moneys” which tells you all you need to know about the RBNZ’s position.
Turkey: Risky but useful in a cashless economy
Turkish Central Bank Governor Murat Cetinkaya said cryptocurrencies are a “threat” for central banks, but could be useful in a cashless economy. By contrast, the religious ministry or Diyanet has called cryptocurrencies “un-Islamic” and said “it is not appropriate to buy or sell virtual moneys” for Islamic believers and further explained believers are to avoid currencies not backed by the state or central authority.
Venezuela: Does the Petro have any gas?
No one really knows what to make of Venezuela’s Petro digital currency yet. It was politically and economically expedient, but the experiment may turn out to be a bust. The government is mandating its use in many parts of the economy from payments to government to tourism and travel. When it comes to the real value of the Petro, like other analysts, we throw up our hands. It is simply a fascinating experiment at this stage
Morocco, Ecuador, Bolivia, Bangladesh & Nepal: Against the law
In many other countries, the government’s position is simple. It’s against the law.
Global cryptocurrency perspective
This big picture view of cryptocurrency and its future is complicated as you can see. Even though cryptocurrency and blockchain technology move at lightning speed, changing the wheels of government, monetary policy and cross-border financial transactions takes time.
Cryptocurrency believers think we can’t move fast enough. Governments and cryptocurrency critics believe we have more than enough time work towards a global regulatory standard. Perhaps the G20 is our best hope for progress in that direction. We’ll be watching to see what they say in July 2018.
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