While El Salvador becomes the first country to adopt the bitcoin like currency cool, besides the dollar, some central banks around the world question the effectiveness of cryptoactive like money and compare their use to “trade stamps”.
The Salvadoran government’s announcement was made on Tuesday, 7th. President Nayib Bukele, who pushed for the adoption of the cryptocurrency, said the measure will help the population to save US$600 million a year in remittances from abroad. In addition, Bukele also stated that the adoption of bitcoin will give access to financial services for those who do not have a bank account.
For Alejandro Díaz de León, president of the Central Bank of Mexico (Banxico), bitcoin, however, is “more like a high volatility, high risk investment strategy” than money, he said on Thursday. 9, during a webinar. He explained that, in his view, bitcoin does not fulfill the three basic functions of currency: serving as 1) an instrument of exchange, 2) a unit of measurement (for the other prices in the economy) and 3) a store of value.
“If it’s not a good store of value and it can have very high volatility, one day it will go up 10% and the next go down 10%, the population will not want their purchasing power, their salary to go up or down by 10% of a In that sense, it’s not a good store of value,” he exemplified.
Exchanging bitcoins for goods or services is “another kind of trick,” said Díaz, “because you’re exchanging one good for another, but not as much money for a good.”
Díaz said there is room for the cryptoactive in technological uses and applications, but this space does not “fully match the functions of money”. “We feel that central banks continue to be the entities that have the best attributes to provide the economy’s money,” he said.
He also noted that the case of El Salvador is very particular, because “many years ago they renounced, as a country, issuing their own currency.” The US dollar has been the official currency of El Salvador since 2001 and will continue to be used in parallel with bitcoin. “They have no control over the US dollar money supply,” recalled Díaz.
In a closed event with bankers also on the 9th, Stefan Ingves, president of the Swedish Central Bank (Sveriges Riksbank), one of the oldest monetary authorities in the world, compared the buying and selling of bitcoins to commercial stamps and questioned the staying power of currencies without the support of governments.
“Private money usually collapses sooner or later,” said Ingves, according to a report by “Bloomberg.” “And, of course, you can get rich trading bitcoin, but it’s comparable to trading stamps.”
Bloomberg recalls that Ingves had already stated earlier this year that bitcoin and other cryptocurrencies are unlikely to escape regulatory oversight as their popularity grows.
In a letter from the manager, BLP Asset noted that the chairman of the US Securities and Exchange Commission (SEC), Garry Genser, wants more oversight of cryptoactives to protect investors. “He made a long speech at the Aspen Security Forum. There are currently 12 Bitcoin ETF proposals on his desk, so the pressure is clearly growing for the SEC to decide how it wants to move forward with regulation of this new market,” the manager comments.
What President Bukele declared to be #BitcoinDay in El Salvador came with a few “hiccups,” said Carsten Menke, head of research in Julius Baer’s “Next Generation” area. “Prices dropped by up to 20%, at best explained by the well-known ‘buy the rumor, sell the fact’ phenomenon.”
Looking beyond El Salvador, Menke said he doesn’t believe other big countries will follow suit and adopt bitcoin as their legal currency. “This is mainly due to the fact that bitcoin doesn’t have the speed and scalability to serve as a payment system,” he says. “Instead, we believe bitcoin could become a form of ‘digital gold’, although so far it has not shown the same safe harbor characteristics.”
In the webinar, Díaz said that money had to be quick and a good means of payment and that, therefore, Banxico worked 24 hours a day, seven days a week. He also stated that bitcoin is more like a “precious metal” than a forced and everyday currency.