Central Bankers Agree Cryptocurrencies Cannot Replace Traditional Currencies

It is an open secret that central bankers cannot come to an agreement on cryptocurrencies though it is gaining traction around the world. However, they agree that digital currencies could not replace the conventional method of currencies. This is in contrast to the speculations of last week that central banks are looking at the virtual currencies since the governors are asking about bitcoin. In any case, their comments indicated their nervousness in accepting the new age currency through the market is facing sluggishness.

Armed With Research Papers

The International Monetary Fund (IMF) chief indicated that cryptocurrencies are here to stay. By saying that, the IMF wanted the banking regulators to look at the pros and cons of the virtual currencies. Now that they see the digital coins going into the mainstream that resulted in a flood of speeches, as well as, research papers among the top supervisors of the world. Predictably, they have raised the digital currencies role in the economy and the regulatory issues that the new age instrument brings in. One thing is very clear, and that is the need for coordinated regulatory efforts to manage the cross-border nature of cryptocurrencies.

However, there is little effort on this as to how to move forward. As a result, there is only one agreement. They agree that bitcoin or Ethereum cannot replace the traditional means of currencies. The IMF has summarized the consensus in its “Global Financial Stability Report.” This report indicated how digital currencies are yet to accomplish the three textbook functions of currency, BloombergQuint reported.

IMF researchers have indicated that “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.” There is also an agreement among regulators that there is a lot of things to worry though they have to remain watchful on digital currencies market. The fact is that virtual currencies like bitcoin represent only a small share in the international financial system.

Though their total market value increased substantially in the last few years, it still remains three percent lower than the combined four biggest central banks’ balance sheet. However, there appears to be no unanimity when it comes to regulating the digital currencies market. For instance, Cornell University’s economics professor, Eswar Prasad, came forward with a list of ways the regulators have handled the bitcoin question.

Difference in Treatment

He pointed out the differences in treating the digital asset. This is evident when the United States’ regulator classified it as commodity whereas Chinese regulator has banned trading in virtual currencies. He believes that different kind of approaches would lead to the restricted effectiveness of regulation. However, the widespread losses in the current year have left regulators to reconcile with their differential positions.

In any case, Prasad pointed out big implications if any central bank comes up with a digital currency. It will mainly affect the financial stability and the monetary policy. Until now, central banks find it easy to execute unorthodox policies like negative rates or helicopter drops.

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