RBA warns on cryptocurrencies

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Via the RBA Friday in parliament:

We note that Committee members have expressed interest in digital currencies or cryptocurrencies. This, and the broader area of distributed ledger technology, is a topic that the Bank has been monitoring closely over recent years.

There have been substantial increases in the prices of cryptocurrencies like bitcoin and ether over the past year. Most of this seems to relate to speculative demand and in particular the use of digital currencies as the means of participation in Initial Coin Offerings. The use of bitcoin and other digital currencies as an actual method of payment remains relatively limited in Australia, as elsewhere. From the Bank’s payments policy mandate, digital currencies do not currently appear to raise any pressing regulatory issues.

Cryptocurrencies can serve as a means of payment in the illicit economy. Accordingly, their use may have some implications for tax authorities and they raise more significant issues for authorities tasked with crime prevention and detection. The distributed and cross-border nature of digital currencies like bitcoin means that regulation of the core protocols of these systems is unlikely to be effective. Authorities have therefore tended to focus on the ‘on-ramps’ and ‘off-ramps’ – that is the links to the traditional payments system. In some jurisdictions, central banks and other authorities have taken action in relation to digital currency exchanges, such as the measures undertaken by the People’s Bank of China earlier this year.

While the longer-term prospects for private digital currencies are unclear, the Bank has previously noted that the distributed ledger and blockchain technologies underlying them have potential for widespread use in the financial sector and many other parts of the economy. The greatest potential is likely to be in sectors where workflows involve lots of different parties with no trusted central entity, and where current practices are quite inefficient. Some frequently suggested financial sector use cases include correspondent banking and remittances, as well as trade financing

Not exactly a ringing endorsement.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.