A common concern that a lot of central bank officials, government bureaucrats and heads of major financial institutions have is that it could require a lot of resources and tools to regulate and monitor peer-to-peer decentralized virtual currencies. With budget restraints and limited revenues, this could become troublesome for law enforcement agencies.
Reserve Bank of Australia (RBA) Governor Glenn Stevens reiterated this point at a recent Symposium on Asian Banking and Finance in San Francisco, in which he noted that the establishment of bitcoins, litecoins, dogecoins and other digital currencies might pose risks and challenges to regulators because of the central bank’s nature of being “outside the perimeter.”
Despite the fact that a majority of governments and central banks are taking a wait-and-see approach when it comes to the growth and development of virtual currencies, most are still monitoring and assessing the cryptocurrency industry to ensure the survival of the financial system.
“Devoting a lot of resources to ever greater refinements to the details of existing regulatory structures will not help us,” said the RBA head. “The possible rise of virtual currencies, the potential for the distinction between regulated financial institutions and telecommunications and technology companies to become blurred may pose challenges. They doubtless will not be the only ones.”
Another worry that central banks and public officials share is the volatility and risk that are affiliated with bitcoins. However, Stevens defended the bitcoin community by affirming that he doesn’t see a problem with this at all because it should be up to the consumer to accept any risks with investments.
“Those who seek high returns, and are prepared to accept the risk, should be allowed to do so. There is value in that occurring,” added the central bank governor, who thinks bitcoiners who take the losses have to accept it rather than seek assistance from local and banking authorities.
Last month, the RBA warned in a report that the $7 billion digital currency market could pose a significant threat to monetary policy and impose instability into the financial markets. However, due to the limited number of virtual currency consumers, the threat is minimal for the time being.
Although Stevens might be unresponsive towards bitcoins right now, financial institutions appear to be hostile against virtual currencies. In April, the National Australia Bank (NAB) announced that it would be closing the accounts of bitcoin-related clients. One letter showed that the reason for the move is because bitcoins “pose an unacceptable level of risk.”
“NAB has recently conducted a review of businesses that trade in digital currencies and has determined that digital currency providers pose an unacceptable level of risk, both to our business and reputation,” the letter to one customer stated. “As a result of this review, NAB has decided to stop providing banking services to you and will close your accounts, effective 2nd May 2014.”
At the time of this writing, bitcoin is trading at just under $650.
