Ignore bitcoin at your peril, naysayers warned

It’s taken all of three weeks for bitcoin to erase the losses it suffered when JPMorgan chief executive Jamie Dimon dismissed the digital currency as a fraud, likening the current investor hysteria to the “tulip mania” that swept through Holland in the 17th century.

Dimon’s bruised ego might not recover so easily, particularly with International Monetary Fund chief executive Christine Lagarde’s qualified endorsement of bitcoin.

Lagarde told a Bank of England conference in London last Friday that virtual currencies might just give existing currencies and monetary policy a “run for their money”.

The IMF chief’s view is that, for now, bitcoin and its kind pose little or no challenge to the current order of fiat currencies and central banks, because they’re too volatile, too risky and the underlying technology of blockchain is not yet scalable. Some cryptocurrencies have also been hacked.

The problem for Dimon and his adherents is that Lagarde’s emphasis is very much on the words “for now”.

One day, she says, it might be easier and safer to hold a digital currency than to obtain paper bills, especially in remote regions.

Virtual currencies could also become more stable. For example, they could be issued one-for-one for dollars, or a stable basket of currencies.

The dark art of bitcoin issuance could be made transparent, governed by a credible, defined rule and an algorithm that can be monitored.

“So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money,” Lagarde said. “The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands as economies evolve.”

Lagarde went further, urging delegates to consider the demand for new payment services in countries where the shared, decentralised service economy is taking off.

In such countries, small peer-to-peer payments, often across borders, are mushrooming. While these payments can be made with credit cards, the charges are quite high.

Virtual currencies, sometime in the future, might be preferable because they offer the same cost and convenience as cash — no settlement risk, no clearing delay and no intermediary to check accounts and identities.

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Source: Ignore bitcoin at your peril, naysayers warned – The Australian