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Summary
- Cryptocurrencies do not have a stable purchasing power.
- Costly verification method and price volatility make them unsustainable.
The recent surge of cryptocurrencies has caught the imagination of people from around the world.
But not all are amused. A senior official of the Bank of Canada dubbed the crypto rally a speculative mania that would soon run out of steam.
The bank’s Deputy Governor Tim Lane believes cryptocurrencies have no qualities to substitute the existing world currencies, hence, people should not pay much attention to the madness.
The biggest loophole, he said, that cryptocurrencies do not have a stable purchasing power, and the costly verification method makes them untenable. Only a central bank can guarantee this stability, Mr. Lane stressed during a speech on payments innovation on Wednesday.
These coins do not have the safety and universal access that money provides, making them inherently flawed and are not a safe payment method.
There’s another reason for their unstable nature.
A simple tweet from a celebrity or a high-profile person can trigger massive price volatility, witnessed in the recent Wall Street rallies.
Of course, no one wants to see currency losing value, he reasoned.
A Tweet Can Trigger Price Fluctuations
Globally, central banks are coming to terms with the emerging trends of digital currencies and payment systems. It is not just the crypto pack, but others like Facebook’s Libra, have also emerged on the scene. And that is why it has acquired urgency in the banking fraternity on how to handle them.
The Bank of Canada is also mindful of that and has been prodding on different circumstances that may arise, and which may call for issuing a digital currency. The major shift towards online transactions recently has increased the bank’s focus on these issues, he said.
Irrespective of the crypto boom, digital currencies can never replace money, at best they may coexist in the future. But that said, there may be another currency waiting in the offing, which may be more resilient to suit the banking needs.
