U.S. Federal Reserve Chair Janet Yellen may not think that cryptocurrencies play much of a role in the economy, but the head of the Bank of Canada said that the hype surrounding bitcoin keeps him awake at night.
In a year-end speech titled “Three Things Keeping Me Awake at Night,” Stephen Poloz, governor of Canada’s central bank, told attendees at the Canadian Club of Toronto that three of his chief concerns heading into the new year are cyber threats, rising household debt due to the cost of housing, and the difficulties that younger Canadians face when trying to find employment.
However, before he concluded his speech, Poloz confessed that there is something else that causes him to lose sleep: “the noise I keep hearing about cryptocurrencies, especially Bitcoin.”
In true Festivus tradition, Poloz aired his list of grievances against bitcoin, beginning with the “misnomer” of calling it a cryptocurrency.
“To begin with basics, the term “cryptocurrency” is a misnomer—“crypto,” yes, but “currency,” no. For something to be considered a currency, it must act as a reliable store of value, and you should be able to spend it easily. These instruments possess neither of these characteristics, so they do not constitute “money,” Poloz said.
Rather, he said, cryptocurrencies are structurally more akin to high-risk securities, although purchasing them resembles gambling more than investing.
“So, what are cryptocurrencies, exactly? Characteristics vary widely but, generally speaking, they can be thought of as securities,” Poloz said. “What their true value is may be anyone’s guess—perhaps the most one can say is that buying these things means buying risk, which makes it closer to gambling than investing.”
Finally, Poloz expressed confusion that anyone would want to move outside of the central banking system, which provides consumers with “an absolutely vital public good.”
“It is often forgotten that the cash provided by a central bank is the only truly risk-free means of payment,” he said, ignoring the obvious threats of counterfeiting and, in some countries, runaway hyperinflation.
Nevertheless, Poloz conceded that, as the world moves deeper into the digital age, the desire for “digital cash” will continue to increase, providing “strong arguments” that central banks — including the Bank of Canada — should research how to appropriately issue digital currency to meet this perceived need within the legacy financial system.
“All central banks are researching this,” he concluded.