Australia’s Reserve Bank has played down the chance of issuing a digital Australian dollar, claiming cryptocurrencies including bitcoin was a “speculative mania”.
The bank’s governor Philip Lowe said in a speech to the Australian Payment Summit bitcoin was unlikely to become an everyday method for making payments because cryptocurrencies were not a very effective payment method with high transaction costs.
“When thought of purely as a payment instrument, it seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions,” Dr Lowe said.
“So the current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment.”
Dr Lowe indicated during the summit the RBA was considering the possibility of issuing “digital banknotes,” but it was not currently convinced there was a case for doing so.
He said it was unlikely to be used for mainstream payments because its price was “very volatile, the number of payments that can currently be handled is very low, there are governance problems, the transaction cost involved in making a payment with bitcoin is very high and the estimates used in the process of mining the coins are staggering”.
His comments come after Reserve Bank of New Zealand acting governor Grant Spencer said bitcoin’s rise to its current trading price of $US17,369 ($22,987) were indicative of pure speculation.
“It looks remarkably like a bubble forming to me,” he told TVNZ.
“With a bubble, you never know how far it’s going to go before it comes down.”
Dr Lowe said history had dictated that privately-issued currencies were not reliable and stable.
“Experience cautions that there are significant difficulties and dangers associated with privately issued fiat money,” he said.
“The history of private issuance is one of periodic panic and instability. In times of uncertainty and stress, people don’t want to hold privately issued fiat money.”
“This suggests that if there were to be an electronic form of banknotes that was widely used by the community, it is probably better and more likely to be issued by the central bank.”
However, Dr Lowe said nothing was stopping people from making daily transactions using cryptocurrencies, but doing so would be very expensive.
“You can do that now. But the truth is, when you look at the actual cost associated with making a payment with bitcoin, it costs more than the cup of coffee,” he said, using a cup of coffee as an example of a purchase.
“If people in this audience want to use bitcoin to make payments they are perfectly free to do that. I’d suggest the cost of that is extraordinary, and do you really want to hold the value that you’re using to make payments with in something where the price fluctuates 20 per cent in a day?”