The ever-growing potential of digital currencies, otherwise known as cryptocurrencies, have the world’s central banks spinning. The security issues are of prime concern, especially after a $500-million security breach in Japan, and the possibility of volatile swings in the price of unregulated cryptocurrencies.
The second most prominent reason why central banks around the world are not happy about cryptocurrencies is the way it allows people to transact by storing value in the form of decentralized digital currencies. The Federal Reserve Bank hasn’t jumped on the cryptocurrency bandwagon yet. According to Chair of Federal Reserve, Jerome Powell, technical issues and risk management will present a challenge and is best left to the private sector. However, future policy plans are not out of the question either.
The European Central Bank has been equally unimpressed, linking Bitcoin with unstable currency fluctuation, tax evasion, and other crimes. At this point, the ECB does not see cryptocurrency as a threat to their monopoly, but it’s unclear if and when this attitude might change in the future. However, it’s interesting to note that although the central bank is pushing this rhetoric to the public, they are constantly exploring ways to eliminate cash and centralize this monetary structure preventing people from choosing alternative currencies. Japan is still ruled by the cash. While credit cards are acceptable, many huge financial transactions are still being conducted in paper money. The Japanese have an innate distrust of debt.
Moreover, cash transactions are more difficult for the government to track. For the time being, Japanese are considering cryptocurrencies such as Bitcoin, only as a way of investment rather than a method of payment. However, the Japanese government did take note of the recent $500 million theft of digital currency from Tokyo’s CoinCheck, Inc. At the moment, there are no plans from the Japanese government to issue any form of cryptocurrency. However, Japanese people stockpiling cash due to draconian negative interest rates might be serving as the catalyst for their interest in the digital currency.