RBA chief dubs bitcoin fascination ‘speculative mania’

The RBA governor's comments come just days after the launch of the world's first bitcoin futures
  • Reuters (ARN)
  • 13 December, 2017 13:55

The fascination with virtual currencies feels more like a "speculative mania", the head of Australia's central bank has said, just days after the launch of the world's first bitcoin futures.

Bitcoin, the world's biggest and best-known cryptocurrency, surged past US$17,000 on Tuesday to an all-time high, an almost 20-fold increase in its price this year.

Wild gyrations of 10-30 per cent in a single day is quite common in bitcoin, which was last up 1.5 per cent at US$16,900. Investors have increasingly grown optimistic that the US$20,000-mark is now within reach.

To tap in to the rapidly rising investor interest, Chicago-based derivatives exchange CBOE Global Markets began futures trading in bitcoins on Sunday, while the CME Group is expected to launch its contracts on 17 December.

But Reserve Bank of Australia (RBA) governor, Philip Lowe, said it was hard to see bitcoins being used for everyday transactions.

"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," Lowe said in the speech titled "An eAUD?"

"The value of bitcoin is 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 of the electricity used in the process of mining the coins are staggering."

The comments come days after his New Zealand counterpart said bitcoin appeared to be a "classic case" of a bubble, and cast doubt on its future.

"Bitcoin is to me very much like gold," Grant Spencer, acting governor of the Reserve Bank of New Zealand, told a local television programme. "It's mined, it has a fixed quantity and the price is very volatile."

"I think a cryptocurrency that has a more stable value will be the sort of cryptocurrency that is more useful for the future," Spencer said.

"I think they are part of the future. But not the sort that we see in bitcoin."

South Korea's government has called an emergency meeting to discuss the trading of cryptocurrencies, and measures on the market will be announced on Friday, a central bank official said on Wednesday.

South Korea is among the world's biggest bitcoin markets.On some days, daily bitcoin volume has surpassed that of the nation's small-cap Kosdaq share index, which has a market value of 271 trillion won (US$248.6 billion), according to the government.

Digital banknotes

Lowe noted the form that money takes has come a long way from clam shells, stones and even rum to metal coins and paper banknotes, and expects this innovation to continue.

The RBA itself is open to the idea of issuing a new form of digital money, perhaps using distributed ledger technology on which bitcoins function.

But the case for doing that has not yet been established, Lowe said, adding the central bank has no immediate plans to issue an electronic form of Australian dollar banknotes, or eAUDs.

"The history of private issuance is one of periodic panic and instability," he added.

"In times of uncertainty and stress, people don't want to hold privately issued fiat money. This is one reason why today physical banknotes are backed by central banks."

The RBA is in close contact with its peers in other countries about introducing digital money.

While a privately issued eAUD is conceivable, history has shown there are "significant difficulties and dangers" associated with privately issued fiat money, Lowe said.

"Few see electronic banknotes on the horizon."

(Reporting by Swati Pandey and Wayne Cole; Editing by Shri Navaratnam)