Nine years since the birth of Bitcoin, central banks around the world are increasingly recognizing the potential upsides — and downsides — of digital currencies. There is fear after a $500-million exchange hack in Japan, volatile price moves and their introduction on regulated derivatives exchanges. Here's a wrap-up of how the world's largest central banks are approaching the cryptos:
US: Risk Management Critical
The Federal Reserve's investigation into cryptocurrencies is in its early days, and policymakers haven't been overly enthusiastic about the idea of a central-bank issued answer to Bitcoin. Jerome Powell, the new Fed chairman said in 2017 that technical issues with the technology remain and "governance and risk management will be critical." Powell said there are "meaningful" challenges to a central bank cryptocurrency, that privacy issues could be a problem, and private-sector alternatives may do the job.
EURO AREA: Tulip-Like
The European Central Bank has repeatedly warned about the dangers of investing in digital currencies. Vice President Vitor Constancio said in September that Bitcoin isn't a currency, but a "tulip" — alluding to the 17th-century bubble in the Netherlands. Colleague Benoit Coeure has warned about Bitcoin's unstable value, saying its links to tax evasion and crime are major risks. ECB President Mario Draghi said in November that the impact of digital currencies on the euro-area economy was limited.
CHINA: Cracking Down
China has made it clear: the central bank has full control over cryptocurrencies. With a research team set up in 2014 to develop digital fiat money, the People's Bank of China believes "conditions are ripe" for it to embrace the technology. But at the same time, the authorities are cracking down on Bitcoin mining and cryptocurrency trading. China says going digital could help improve payment efficiency and allow more accurate control of currencies.
JAPAN: Not Needed
Cash is still king in Japan, according to the head of the central bank's FinTech Center. The Bank of Japan is not considering issuing a digital currency as there is "no demand" for it, Yuko Kawai said this month. Authorities may be forced to take action on the sector, however, after nearly $500 million in digital tokens was stolen from the Coincheck Inc exchange in Tokyo on January 26. BOJ chief Haruhiko Kuroda said in December of Bitcoin that "if it's a question of whether it's functioning like currencies as a form of payment or means of settlement, I don't think it is."
GERMANY: Investors Beware
In a country where a lot of people still prefer to pay in cash, the Bundesbank has been particularly wary of the emergence of Bitcoin and other virtual currencies. President Jens Weidmann described Bitcoin's move in December as having a "speculative character," but for regulators, "just because investors can lose money isn't a reason to get involved." Board member Carl-Ludwig Thiele said in September that a shift of deposits into blockchain would disrupt banks' business models.
UK: Potential 'Revolution'
Bank of England Governor Mark Carney has cited cryptocurrencies as part of a potential "revolution" in finance. The central bank started a financial technology accelerator in 2016. Carney says technology based on the blockchain, the distributed accounting database, shows "great promise" in enabling central banks to strengthen their defenses against cyber-attacks and overhaul the way payments are made between institutions and consumers. He has nevertheless cautioned that the BOE is still a long way from creating a digital version of sterling.
FRANCE: 'Dark Side'
Bank of France Governor Francois Villeroy de Galhau said in June that French officials "advise great caution with respect to Bitcoin because there is no public institution behind it to provide confidence — in history all examples of private currencies ended badly." Bitcoin has a "dark side," he said, citing data attacks. Villeroy de Galhau has warned that people who use the cryptocurrency "do so at their own risk."
INDIA: Not Allowed
India's central bank is opposed to cryptocurrencies given that they can be a channel for money laundering and terrorist financing. Nevertheless, the Reserve Bank of India has a group studying whether digital currencies backed by global central banks can be used as legal tender. Currently, the use of cryptocurrencies is a violation of foreign-exchange rules.
SINGAPORE: Official Warning
Characterised — sometimes with pride — as a nanny state, Singapore has lived up to that label when it comes to cryptocurrencies, issuing an official warning to citizens to be wary. The city-state's monetary authority said in a December 19 statement that it "is concerned that members of the public may be attracted to invest" in them because of the surge in prices. Buyers should be aware "they run the risk of losing all their capital."
BRAZIL: Support Innovation
The Banco Central do Brasil sees "no immediate risk for the Brazilian financial system" from cryptocurrencies, but remains alert to the developments in their usage, according to a statement issued in November. The central bank pledged "to support financial innovation, including new technologies that make the financial system safer and more efficient."
CANADA: Asset-Like
Carolyn Wilkins, the Bank of Canada's senior deputy governor, is leading research on cryptocurrencies and said in November that cryptocurrencies aren't true forms of money. "This is really an asset or a security, and so it should be treated that way," Wilkins said. Like others, she viewed distributed-ledger technology as promising for making the financial system more efficient. BOC staff are also exploring the circumstances under which it might be appropriate for the bank to issue its own digital currency.
SOUTH KOREA: Crime Watch
Authorities in South Korea have focused on protecting consumers and preventing cryptocurrencies from being used as a tool of crime. While the government continues to weigh legislation to shut down cryptocurrency exchanges, the nation's Financial Services Commission is setting up a special team to probe cryptocurrency trading. South Korea is set to begin a real-name account system for such trading. Bank of Korea Deputy Governor Shin Hosoon said in November more research and monitoring was needed. So many Koreans have embraced Bitcoin that the prime minister has warned cryptocurrencies might corrupt the nation's youth.
RUSSIA: 'Pyramid Schemes'
Russia's central bank has expressed concern over potential risks from digital currencies, with Governor Elvira Nabiullina saying "we don't legalize pyramid schemes" and "we are totally opposed to private money, no matter if it is in physical or virtual form." For the moment, the Bank of Russia prefers to delay a decision on regulating the financial instruments unless President Vladimir Putin pushes for action sooner.
AUSTRALIA: Speculative Mania
Australia's central bank chief criticised cryptocurrencies in a speech in Sydney December 13, arguing the asset is more likely to appeal to criminals than consumers. "The current fascination feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment," said Philip Lowe, the Reserve Bank of Australia's governor.
TURKEY: Important Element
Digital currencies may contribute to financial stability if designed well, Turkish Central Bank Governor Murat Cetinkaya said in Istanbul in November. But they do pose new risks to central banks, including to their control of money supply and price stability, and the transmission of monetary policy, Cetinkaya said. Even so, the Turkish central banker said cryptocurrencies may be an important element for a cashless economy, and the technologies can help speed up and make payment systems more efficient.
Bank for international settlements: Can't Ignore
The central bank for central banks has said that policymakers can't ignore the growth of cryptocurrencies and will likely have to consider whether it makes sense for them to issue their own digital currencies at some point. "Bitcoin has gone from being an obscure curiosity to a household name," the BIS said in September. One option is a currency available to the public, with only the central bank able to issue units that would be directly convertible to cash and reserves. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Privacy could also be a concern.
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