Central Banks in New Zealand and Australia Issue Bitcoin Warning

Representatives from the central banks of New Zealand and Australia have issued their own official warnings on bitcoin, terming the currency “interesting, but risky”.

The banks’ comments come hot on the heels of the European Banking Authority’s stance today. Both comments echo the public statement issued by Chinese authorities on 5th December, which led to the price of bitcoin falling by $300 on popular exchange Mt. Gox.

New Zealand

John McDermott, assistant governor at the Reserve Bank of New Zealand (RBNZ), said banks and businesses should “tread very carefully” with the digital currency, in a report by the Wall Street Journal. He added:

“You have to worry about […] the supply, how it’s controlled, how it’s monitored. Who knows at this point? There is still a lot for the world to learn on this issue.”

RBNZ Governor Graeme Wheeler cited price volatility as a cause for concern, but said “Conceptually, the idea is very interesting — that you can have a means of payment that basically is universally accepted and basically means that you get aside capital controls, you get aside exchange rate issues.”

Australia

Next door, the governor of the Reserve Bank of Australia, Glenn Stevens, said he was “still trying to understand” the cryptocurrency during an interview with the Australian Financial Review.

“Best I can see, it would be open to you to create a currency called the ‘Michael’ and get people to buy it and you could promise to, you know, only issue so much of it and if people had confidence in that they could use that as a kind of numeraire. You could measure things in Michaels. You could buy and sell them.”

“It might or might not hold its value depending on whether you keep the promise,” Stevens continued.

The comments are interesting, as Stevens seems to think bitcoin’s 21,000,000 unit limit is based on a ‘promise’ by some individual or organization (though he later acknowledged bitcoin was “based on some computer algorithm to limit supply”).

The AFR’s editor-in-chief, Michael Stutchbury, also refers to bitcoin and its contemporaries in the interview as “artificial currencies”.

He also cautioned against “speculative excesses” and said that, while it had not caused the economy “a material problem yet,” it could result in something like that favoured investment bubble trope, Tulip Mania.

However, Stutchbury did raise the interesting question of whether digital currency technology could “take us back to a world” of competing currencies.

Stevens responded that the current international economy already had competing currencies, saying there was no law against people making daily transactions in whichever national currency they chose.

He concluded with:

“There have been many bases for currencies and in the end, I suppose, the ones that will […] the ones that survive will be the ones that hold their value, which is why we have an inflation target which we’re hitting.”

Few central bank officials have issued public opinion on bitcoin before October, but the currency’s recent surge in value has raised the issue to prominence.

Attention and comments from governments of the world’s two largest economies, the US and China, may prompt those in other countries to speculate for themselves.

Australia currently ranks ninth in the world for peering nodes on the bitcoin network, according to Bitnodes.

Australasia image via Shutterstock