Bitcoin's Volatility makes it a non-currency


Bitcoin’s volatility makes it a non-threat - Belgium Central Bank governor


Even though Bitcoin is touted as becoming the future global currency, some countries have their doubts, not even believing that it should be considered a legal medium of exchange at all.

Recently, Jan Smets, who is the governor for National Bank of Belgium, added his two virtual cents into the debate, citing instability as the main reason that Bitcoin won’t be trading as a currency:
“It’s not stable like the euro. Creating blockchain-based digital cash could diminish our limitation to drop interest rates below zero.”

He also said that because Bitcoin is decentralized, it does not have the support of central entities monitoring it. He added that even though the investment risk is low at the moment, it could increase soon due cryptocurrencies’ speculative nature. A roughly translated interview between Smets and the VRT news publication states:
“Let’s stop calling Bitcoin a currency. Unlike the euro, Bitcoin is not guaranteed by a central bank or government as a means of payment, so Bitcoin is not a currency. Even if there are small risks for investing in Bitcoin at the moment, there are potential consequences for financial stability.”

However, the core vision and aim of Bitcoin, and other cryptocurrencies, is that it does not require a central entity to be responsible for it. Users use a peer-to-peer system, thereby eliminating intermediaries, such as banks, and the fees that go along with it.

In addition, unlike traditional fiat currencies, Bitcoin has no risk of hyperinflation as there is only a finite number of coins available. However, with fiat currencies, government and central banks will just be able to print more money as and when the perceived need arises.

Bitcoin is not without its proponents though. The Bank of Finland had previously released a research paper entitled ‘Monopoly without a monopolist: An Economic analysis of the Bitcoin payment system’ in a bid to explain the crypto’s decentralized nature.

The paper stated:
“Bitcoin is a monopoly run by a protocol, not by a managing organization. Familiar monopolies are run by managing organizations with discretion to determine and then change prices, offerings and rules. Monopolies are often regulated to prevent, or at least mitigate, their abuse of power.”

The paper went on to add:

“Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional. Its apparent functionality and usefulness should further encourage economists to study this marvelous structure.”

The disruptive nature of cryptocurrencies seems to be the underlying reason that central authorities are against it. By giving people autonomy over their own wealth, the government will not be able to control their citizens’ money, and subsequently, the global economic structure.