In the digital age, of course, biting won’t help, and standard counterfeiting doesn’t rank among the many problems that bitcoin faces. Two years ago we held a seminar on cryptocurrencies (and especially bitcoin) at our central bank. When we were preparing for the event, people from the libertarian, cryptocurrency-loving community in Prague asked me: aren’t you afraid of us? Aren’t you afraid of bitcoin and other independent, central-bank-free currencies and their power to marginalise traditional money? I said – well, not really. Let’s put aside the fact that all of these alternative currencies are still marginal in terms of size and scope (all the electronic transactions using bitcoin worldwide combine to some 16% of the number of electronic transactions conducted in the Czech koruna, a currency used by a mere 10.5 million people). Bitcoin’s global market cap also constitutes only a fraction of even the Czech money supply. The key problem is bitcoin’s constantly changing purchasing power. So far it has been more volatile than natural gas, the most volatile commodity. Such a feature is really worrying for any innovation that wants to be seen as money: a means for paying and settling transactions, a unit of account and a store of value. Let’s try to imagine the following: today’s five pound note being worth ten pounds tomorrow and then one pound the day after tomorrow. It would be very difficult to exist in such a monetary system, to use the currency in everyday life.
How will the governance work in coordinating across these three realms? In the meantime, while we work to sort all this out, we should take considerable solace from the fact that we have made the financial system more resilient to shocks. We may not be able to anticipate the next area of excess. But with higher capital and liquidity requirements and the use of stress tests to assess emerging vulnerabilities, I think we are much better placed than we have been in the past. Thank you for your kind attention. 4  BIS central bankers’ speeches