Bubble or breakthrough? Bitcoin keeps central bankers on edge
Cryptocurrencies could undermine monetary policy but have also pushed banks to consider their own digital cash and payment platforms
Central bankers say the success of bitcoin and other cryptocurrencies is just a bubble.
But it keeps them awake at night because these private currencies threaten their control of the banking system and money supply, which could undermine the monetary policies they use to manage inflation.
With bitcoin smashing through the US$8,000 level for the first time this week after a 50 per cent climb in eight days, they are also worried they will be blamed if the market crashes.
This is why several central banks are advocating regulations to impose control. Others are even looking at whether to introduce their own digital currency and are testing payment platforms.
“The problem with bitcoin is that it could easily blow up and central banks could then be accused of not doing anything,” said Ewald Nowotny, an European Central Bank policymaker.
“So we’re trying to understand whether bank activity in relation to cryptocurrency trading needs to be better regulated.”
The global cryptocurrency market is worth US$245 billion, which is tiny compared with the trillion dollar plus balance sheets of the Bank of Japan, the US Federal Reserve or the ECB.