In the opening speech to a cash symposium of the Deutsche Bundesbank, its president Jens Weidmann denies crypto currencies such as Bitcoin to be considered money or currencies. He calls for global regulation and is convinced that digital money will not become a serious competitor for cash or bank balances in the foreseeable future.
The terms money and currency can only be applied to Bitcoin and other crypto currencies to a very limited extent, Weidmann said according to a speech published by the Bundesbank. The functions of money as a means of payment, value storage and unit of account were only fulfilled to a limited extent by crypto currencies, which is why he considers the term “crypto token” more appropriate.
For example, crypto currencies are hardly used as a means of payment because paying with them is comparatively cumbersome. Weidmann points out that transactions can take several minutes: “That may still be acceptable for buying a car, but Bitcoin is not suitable for paying at the cash register.
No gain in stability due to high power consumption
An important prerequisite for a functioning monetary system is confidence in its intrinsic value. In the case of banknotes, central banks would create this trust, while in the case of Bitcoin, trust would be created by increasingly complicated algorithms, among other things, which required ever higher power consumption. Weidmann referred to calculations by Carl-Ludwig Thiele, a member of the Bundesbank board, according to which a Bitcoin transaction consumes 460,000 times more electricity than a normal bank transfer.
In view of the high fluctuations in the value of crypto currencies, Weidmann said that electricity consumption was not offset by a gain in stability, which restricted its use as a means of payment.
“Nobody wants to give away a means of payment that rises strongly in value; nobody wants to accept a means of payment that loses strongly in value. Bitcoin is inefficient from an economic and ecological point of view”.
Global regulation makes sense
Regarding demands for a regulation of crypto currencies up to a ban, Weidmann said that possible losses in value alone do not justify a ban. It was important to enforce existing money laundering regulations. He pointed out that the European Money Laundering Directive is currently being revised so that operators of exchange offices and providers of e-wallets will in future have to monitor their customers within the framework of the usual due diligence obligations for financial institutions. However, national or European regulations could only be effective to a limited extent, which is why he wants to put the issue on the G20 agenda.
Regulatory intervention could give rise to potential financial stability risks, which are currently still limited. However, this could change if banks invest more in crypto currencies, provide investors with money for speculation with digital tokens or grant liquidity lines to crypto exchanges. The banks would have to back these risks with sufficient equity capital, which would be expensive from Weidmann’s point of view: “Given the high risk content, this would certainly be considerable capital requirements.