The adoption of Bitcoin as a national currency by a country could lead to its economic collapse, says a former official and now advisor of China’s central bank.
Sheng Songcheng, a counselor at the People’s Bank of China (PBoC) has dismissed digital currencies like bitcoin as assets that lack the value basis of a legitimate currency.
In an interview with leading financial Chinese publication Yicai, Sheng further opined that a deflationary nature of digital currencies would mean that they would not function well as a currency or medium of exchange in modern economies.
“Bitcoin is a string of code generated through a complex algorithm, and does not have inherent value…,” stated Sheng, who added that the virtual nature of digital currencies are their most significant characteristic.
Sheng, who was the director-general of the Department of Statistics and Research at the People’s Bank of China (PBoC), holds a PhD in economics from the Shanghai University of Finance and Economics in the 90s. He is currently the professor of economics and finance at a business school in Shanghai.
Turning the screws further, Sheng stated:
Bitcoin will reach its ceiling of 21 million in 2140. If it is accepted as standard money, that will inevitably lead to deflation and constrain economic growth.
Sheng’s comments come in the months following the PBoC’s increased scrutiny of the country’s bitcoin trading markets from as early as January this year. The regulatory oversight has resulted in a number of significant changes among Chinese bitcoin exchanges including the addition of trading fees, stricter know-your-customer/anti-money laundering norms and the complete curb of margin or loan-based trading.
Sheng’s most stinging criticism of digital currencies is centered on their volatility, stating “fluctuations in their prices can easily reach 10 to 30 percent.”
If a country accepts one of them as its national currency, the entire national economy could collapse due to currency volatility.
Meanwhile, China’s central bank – having opened its digital currency research institute earlier this month – is making marked efforts toward launching its own digital currency. The central bank completed an early trial of its digital currency on a blockchain late last year.
The opinions offered by the former PBoC official aren’t anything new when pitted with criticisms of decentralized, state-agnostic digital currencies by other central bankers elsewhere.
Less than a month ago, German central bank president Jens Wiedmann claimed that instant bank payments would put an end to most citizens’ interest in digital currencies like bitcoin. For separate reasons, Wiedmann also claimed that digital currencies could worsen financial crises in the future.
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Last modified: May 21, 2020 9:42 AM UTC