Mojmír Hampl: A digital currency useful for central banks? Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, at the 7th BBVA Seminar for Public Sector Investors and Issuers, Bilbao, 27 February 2018. * * * Ladies and gentlemen, Let me begin by thanking BBVA for their kind invitation to this event. It is a pleasure to speak in front of this knowledgeable and receptive audience, and it is a pleasure for me in particular to be in Bilbao for the first time in my life. Cryptocurrencies, digital currencies, and especially bitcoin have become almost household names over the last couple of months. What is especially interesting and curious for this place – as some of you might know – is that among the hundreds of cryptocurrencies introduced in the last couple of years is one called “bilur”, which means “chain” in Euskara, the Basque language. Bilur is unique for being the first cryptocurrency explicitly linked to the price of oil. By the way, the second part of the label “cryptocurrency”, namely the currency part, is a misnomer in my eyes. No existing cryptocurrency for the time being conforms to the three basic functions of money: a store of value, a unit of account, and a medium of exchange. One cannot store value in an asset that can get 30%–50% cheaper or more expensive in a matter of days.
One cannot use cryptocurrencies to measure value in economic transactions, because prices are mostly not displayed in cryptocurrencies and transaction costs are high and hidden for most people who would like to pay this way. One cannot, at least so far, use cryptocurrencies as a medium of exchange, because not many counterparties accept them. Therefore, cryptocurrencies are not currencies. To me, rather, they resemble commodities – pieces of code with some value for enthusiastic collectors. Which is fine. Its founders wanted to create something that – through the process of mining and the costs associated with it – would resemble a physical commodity or something physical. I would call it a commodity of the new digital era. But compared to vintage wine, art, or postage stamps, the amount of digital commodities is never really fixed, as proved, for instance, by last year’s split (or “fork” – I very much like this particular word) between bitcoin and bitcoin cash or the recent split between litecoin and litecoin cash. A piece of code is, in effect, easier to duplicate and improve upon. The fact that cryptocurrencies are rather commodities also shapes our light-touch, liberal approach to regulation at the CNB. We do not want to ban them and we are not hindering their development, but we are also not actively helping or promoting them and we are not protecting them or the customers that use them. Like in a casino, everyone investing in a cryptocurrency must be prepared to lose the entire bet.