Central bank report says Bitcoin could threaten the global financial system
15 May 2014 4:04pm
A report by the Bank of Canada (BoC) has warned that the widespread adoption of cryptocurrency Bitcoin could bring serious risks to the established financial system.
Entitled Understanding Platform Based Digital Currencies, the authors wrote "there could be potential risks to overall ﬁnancial stability if Bitcoin became a signiﬁcant means of payment and the Bitcoin system remained unstable".
The central bank highlighted a number of problems encountered by Bitcoin users, particularly price volatility. The report said users faced considerable risk when interacting with the cryptocurrency, pointing to the series of security scandals that have engulfed Bitcoin in recent months.
A host of Bitcoin exchanges including MtGox have been forced to close, while hundreds of thousands of dollars worth of the digital currency have been stolen.
However, the report was not oblivious to the many advantages of a decentralised peer-to-peer currency, including lower transaction costs for online merchants, since there are no third-party intermediaries. The cyrptocurrency can also slash the cost of the remittances.
Last year, Kenyan start-up BitPesa announced plans for a money transfer service to compete with the likes of Western Union by using Bitcoin.
Established providers such as Western Union deduct between $10 (£6) to $17 (£10) from a wire transfer of $200 (£122) from the US to Kenya, and the money can take as long as five days to clear.
BitPesa by contrast is planning to charge three percent on overseas transfers and claims the money will arrive the same day. A wire transfer of $200 using BitPesa would cost just six dollars.
The warnings given in the BoC document are a far cry from what the central bank's top officials were saying about Bitcoin just last month. In April, top officials from the Canadian central bank said they were not worried about the rise of Bitcoin and other digital currencies.
Speaking to the Senate banking committee, BoC governor Poloz said "these are early days … and so far digital currencies have not made it to what we call money."
"We’ve got a ways to go before we need to be thinking about policy implications," he added.
However, senior deputy bank governor Tiff Macklem, conceded that if Bitcoin takes off in a major way it could impact the Bank of Canada's ability to control the money supply.
In other news
Activists are furious that Boris Johnson is trying to become and MP while being the Mayor of London at the same [Read more]
Nigel Farage has argued that despite pollsters indicating a decline in Ukip's popularity, it is actually “going [Read more]
High stakes talks between Greece and its creditors will continue through the May Day holiday until Sunday. [Read more]
Last night, some of London's most famous landmarks turned pink in celebration of the birth of a girl to the Duke [Read more]
Floyd "Money" Mayweather is gearing up for what's been dubbed the fight of the century. And while it will no doubt [Read more]
So the joyous news has been announced, and the Duchess of Cambridge has given birth again. [Read more]
The newest member of the royal family arrived this morning after the Duchess of Cambridge gave birth to a girl, [Read more]
Microsoft's latest facial recognition software is proving a hit with millions of people whiling away their day [Read more]
Bournemouth and Watford will enjoy a £130m windfall next season after securing promotion to the Premier League [Read more]
Shares in Daniel Stewart, the broker backed by Rob Terry, have been suspended for a second time after its in-house [Read more]
A labour-led government after the General Election would be best for employers struggling with pension scheme [Read more]
The term “shadow banking” was first coined in 2007 to describe parts of the financial intermediation process [Read more]
Next week’s General Election promises to be the closest we have seen for many decades, and there are a number [Read more]
Inflation and unemployment in the Eurozone are gradually improving, but economists warn the currency bloc’s [Read more]
Cert 12a | ★★★★☆ [Read more]