Fascination with bitcoin a 'speculative mania': RBA governor

Reuters News
Posted: Dec 12, 2017 5:21 PM

SYDNEY (Reuters) - The fascination with virtual currencies feels more like a "speculative mania", the head of Australia's central bank said on Wednesday, just days after the launch of the world's first bitcoin futures.

Cryptocurrency bitcoin surged past $17,000 on Tuesday to an all-time high, two days after futures trading began on Chicago-based derivatives exchange CBOE Global Markets. Investors have grown optimistic that the $20,000-mark is now within reach.

But Reserve Bank of Australia (RBA) governor Philip Lowe listed the difficulties of using bitcoins in everyday payments.

"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," Lowe said in the speech titled "An eAUD?"

"The value of bitcoin is very volatile, the number of payments that can currently be handled is very low, there are governance problems, 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 itself is open to the idea of issuing a new form of digital money, perhaps using distributed ledger technology on which bitcoins function, but the case for doing that has not yet been established, Lowe added.

The RBA also has no immediate plans to issue an electronic form of Australian dollar banknotes, or eAUDs, but it is looking at how settlement arrangements with central bank money might evolve.

While a privately issued eAUD is conceivable, history showed there were "significant difficulties and dangers" associated with privately issued fiat money, Lowe said.

"The history of private issuance is one of periodic panic and instability," he added.

"In times of uncertainty and stress, people don't want to hold privately issued fiat money. This is one reason why today physical banknotes are backed by central banks."

The RBA is in close contact with its peers in other countries on introducing electronic banknotes and few see them on the horizon, Lowe said.

(Reporting by Swati Pandey; Editing by Wayne Cole)