Ever since the launch of cryptocurrency, the banking sector and digital currencies are in a constant rift one way or another. The Bank of America issued a statement in which they declared cryptocurrency as a “competitive threat” to the banking sector. Whereas the Dutch Central bank stated that they do not consider cryptocurrencies as “real money”.
The divisional director of De Nederlandsche Bank, Petra Hielkema issued a statement:
Cryptocurrency did not adequately permit three specific functions which consumers need and which are currently fulfilled by fiat currency.
She further elaborates:
De Nederlandsche Bank does not consider cryptocurrencies to be money. If something wants to be treated as money, you have to be able to spend, save and calculate with it.
Cryptocurrency is volatile and the consumer is at a constant risk of losing their money. It has a lot of technological problems along with roadblocks that it often gets difficult for the investors to carry out their transaction in a smooth and efficient manner. Something as volatile and as risky as digital currency, cannot be considered as money. However, regardless of such statement by the Dutch Central Bank, it still does not mean that are planning to ban the cryptocurrency that is being used within their region.
The UBS strategist, Joni Teves pointed out that:
Bitcoin is still too unstable and limited to become a viable means of payment or a mainstream asset class. Owing to its lack of price stability, bitcoin falls short of criteria that need to be satisfied to be considered money.
Furthermore, it was also pointed out by the divisional director of De Nederlandsche Bank, that they have been experimenting with the crypto technology since three years. The team has managed to create four prototypes of the technology. However, they believe that the system cannot be incorporated into the banking sector and its payment system. It still needs more innovation to become a part of the traditional mode of banking.
The Bank of Finland also released a paper called “The Great Digital Currencies” in June 2018. The main aim of the paper is to explain the nature an essence of cryptocurrency. They termed the concept of cryptocurrency as a “fallacy” rather than calling it as real money. The author of the paper, Aleksi Grym stated that currency cannot be digitized. He further elaborates on this idea:
For all intents and purposes, that ledger is a centralized ledger. The fact that there are multiple synchronized copies of it, distributed across a network, is irrelevant, as each one has the same data.
He argues that money is a unit of exchange, something that has a store of value. It cannot be digitized. Crypto, on the other hand is not created merely “out of thin air” in fact its creation is also based on the liquidity transformation. People convert their money into bitcoin as a form of investment.
Another interesting statement was issued in June 2018, when the Bank of International Settlements also made their stance clear on Bitcoin. They are not backing the technological form of currency that is purely digital. A 24 page article was released in which they pointed out that there are a lot of shortcomings in the digital currency, which might prevent the currency class from making a shift considering the hype that is going around it these days. The article further mentions that the currency is highly unstable and uses as much electricity as the entire Switzerland does. The decentralization factor of the currency is not an advantage but it is an actual flaw that can pose a threat to investments that are being made in the world of digital currency.
The article states:
The main inefficiencies arise from the extreme degree of decentralization: creating the required trust in such a setting wastes huge amounts of computing power, decentralized storage of a transaction ledger is inefficient and the decentralized consensus is vulnerable. Ultimately, this points to the lack of an adequate institutional arrangement at the national level as the fundamental shortcoming.
People are investing in cryptocurrency but can it really take the place of real money is a question that is being raised at different levels. It is getting global acceptance but even global acceptability is not proving to be beneficial for the world of crypto at the moment as the whole market is struggling.