Australia & New Zealand Central Banks Unimpressed With Cryptocurrencies

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Bitcoin and its peers cannot be treated similar to fiat money as they perform poorly as reliable stores of value, thanks to the volatility in their prices, officials at the Australia and New Zealand central banks said separately.

"Bitcoin and other cryptocurrencies are yet to establish themselves as reliable stores of value," Tony Richards, Head of Payments Policy Department at the Reserve Bank of Australia, said in the Australian Business Economists Briefing on Tuesday.

"This is most obvious in a comparison of the volatility of Bitcoin as opposed to national currencies like the Australian dollar."

While admiring the design of the Bitcoin protocol, Richards cited the many hacks of cryptocurrency exchanges and wallets and said there was a lot more risk in bitcoin intermediaries than there is in conventional banks and financial institutions that are regulated.

The RBA official also noted that cryptocurrencies were not very useful as a medium of exchange for daily transactions and the number of businesses that accept them as payment may actually be falling despite the rising prominence of Bitcoin and altcoins.

"Nine years after its launch and about five years since it entered the public consciousness, bitcoin continues to have structural flaws that make it unsuitable for many uses, many of which stem from its inefficient verification process," Richards said.

Further, Richards said there may be little need for cryptocurrencies in situations where there are trusted central entities in well-functioning payment systems.

The central banker said trustless blockchain solutions are unlikely to be adopted in future and expects new systems to be permissioned shared ledgers, where a central body still plays a dominant role.

Richards also noted that cryptocurrencies were unlikely to pose any major concerns for the Australian central bank, given their very low usage in the country.

He said that the RBA was not "actively pursuing" the consideration of issuing a new electronic form of money or a central bank digital currency, but has "an open mind" to the idea.

Citing the interactions with other central banks, Richards said a central bank digital currency was "also not front of mind for most other advanced economy central banks."

In New Zealand, Reserve Bank Deputy Governor Geoff Bascand likened the recent cryptocurrency craze to the gold rush in the country during the 1860s.

In a speech in Auckland, Bascand said "it is yet to be seen that a central bank digital currency will bring conclusive benefits."

"Currently, it is too early to determine whether a digital currency should be issued," he said.

The RBNZ official also said that it was "unlikely that a central bank digital currency would be issued if it posed large and significant risks to New Zealand's financial system."

"A breakdown in the financial system can cause enormous economic and social harm," Bascand said. "We could not issue a digital currency if it might undermine financial stability."

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