Digital Currencies Need Regulation to Grow

Researchers from the Bank of Canada maintain that digital currencies such as bitcoin need government intervention for it to flourish long-term.

The report, Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies [PDF], examines the period in Canada when private bank notes and government issued notes or ‘Dominion’ notes were in circulation at the same time in the 1800s.

The report states that because the notes shared the same characteristics of today’s digital currencies, it can draw from the experience as to how today’s digital currencies might function. It adds that private digital currencies are likely to be counterfeited too. However, while a central bank can issue its own digital currency, it finds that doing so is unlikely to push out private alternatives.

The report’s authors state:

We conclude that well designed and managed private digital currencies could circulate widely but only with appropriate government regulation to ensure their safety, soundness, and uniformity.

CAD-Coin

First revealed in June 2016, although it was first proposed in 2014, the Bank of Canada confirmed that it was working on its own digital currency prototype known as the CAD-Coin. In partnership with some of Canada’s biggest banks and R3, it was announced that this would be the digital equivalent of the Canadian dollar.

Since the prototype, details of the experiment are yet to be revealed; however, according to Carolyn Wilkins, Bank of Canada senior deputy governor, central-bank issued currencies play a significant role in financial stability and function as a ‘transmission mechanism for monetary policy.’

In her opinion the digital currency bitcoin is viewed more of a commodity rather than a money itself despite the fact that this was the currency that provided the building blocks for the Bank of Canada to develop its CAD-Coin.

Government Regulation

The whole point of bitcoin’s existence and the fact that it remains the most popular digital currency is down to the fact that it’s an unregulated and decentralized currency.

The fact that the Bank of Canada believe that the currency needs government regulation for it to flourish in the long-term is unlikely to go down well with the general populace, and is unlikely to happen anytime soon.

Not only that, but given that a bank-issued digital currency such as the CAD-Coin is unlikely to force bitcoin out illustrates the impact the currency has produced in its relatively short life-span.

As an alternative digital currency that people are using there are many who would say that it’s more money than commodity.

Featured image from Shutterstock.