Bitcoin Fascination Feels Like ‘Speculative Mania,’ RBA Says

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  • RBA chief joins central bank criticism of cryptocurrencies
  • Lowe says Bitcoin more attractive to criminals than consumers

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Australia’s central bank chief added his voice to growing criticism of bitcoin, saying the cryptocurrency that’s soared more than 17-fold this year is more likely to appeal to criminals than consumers.

“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,” Reserve Bank of Australia Governor Philip Lowe said in a speech in Sydney Wednesday. “So the current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment.”

Bitcoin has soared this year as people rushed to buy the digital currency in the hope it will become an alternative to gold or traditional money. Lowe joined a string of central bankers globally who have warned of the downside of digital currencies, including his New Zealand counterpart Grant Spencer, who said over the weekend that bitcoin’s gains looked “remarkably like a bubble.” In South Korea on Wednesday, policy makers met to discuss cryptocurrency regulation.

Read what other central banks are saying about digital currencies here

Cryptocurrencies aren’t commonly used for everyday payments and it’s hard to see that changing, Lowe said.

“The value of bitcoin is very volatile, the number of payments that can currently be handled is very low, there are governance problems,” Lowe said. “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 RBA chief’s speech also addressed a subject of increasing interest: does it intend to issue a digital form of the Australian dollar? The short answer is no, Lowe said.

The case for adding an electronic form of Australian banknotes to the payments mix hasn’t been established, even if it were technologically feasible, Lowe said. The RBA is in close contact with its peers in other countries on this issue and few see electronic banknotes on the horizon, he added.

Korean authorities held an unscheduled meeting on cryptocurrencies on Wednesday, according to a government official, who asked not to be named citing policy. Yonhap News reported earlier that several ministries are meeting to discuss “ways to curb cryptocurrency speculation amid growing concerns about financial damage to local investors.”

Bitcoin has become so popular in Korea that that the prime minister recently warned that cryptocurrencies might corrupt the nation’s youth.

Earlier this month on local exchanges, the crytpocurrency traded at a premium of more than 20 percent against prevailing international rates and bitcoin trades versus the Korean won accounted for about 21 percent of the world’s volume on fee-charging venues, according to Coinmarketcap.com.

— With assistance by Tracy Withers

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