Economies intensify their scrutiny of digital currencies

Cryptocurrencies are not a unit of account and calling them currencies is a “misnomer”, top economist Nouriel Roubini has said, as major global economies intensify their regulatory scrutiny of Bitcoin and other digital currencies.

Central banks around the world have been reluctant to endorse cryptocurrencies because of their speculative nature, lack of value and regulatory oversight. The Central Bank of the UAE does not recognise cryptocurrencies as a legal tender.

“Cryptocurrencies may have an asset value but based on my definition they are not currencies. That’s a fact,” Mr Roubini, chairman of New York consultancy Roubini Macro consultancy and well known for predicting the sub-prime mortgage crisis in the US and the subsequent 2008 global financial crisis, told the Alternative Investment Management Summit in Dubai.

“If something is volatile [at] 5 to 10 per cent, [it] cannot be a currency. A currency has to have a stable value relative to the price index of goods and services.”

Last month, China vowed to root out “illegal” activity in the trading of Bitcoin and other virtual currencies, as it renewed its tough talk on cryptocurrencies.

The government will “resolutely clamp down on virtual currency speculation, and related financial activities and misbehaviour in order to safeguard people’s properties and maintain economic, financial and social order”, Reuters reported.

Cryptocurrency “is not a basis for payment system and whether it is secure or not, we don’t know”, said Mr Roubini, who has been a vocal critic of cryptocurrencies.

Despite the increased crackdown by regulators, cryptocurrencies have continued to trade higher over the past few weeks. Bitcoin, the world’s largest cryptocurrency, was down 3.29 per cent to trade at $55,430.87 at 11.09am UAE time yesterday. However, it has risen almost 100 per cent since the start of the year. Ethereum, the second-largest cryptocurrency, was down 0.71 per cent at $3,461.87, according to coinmarketcap.com website.

In June, the Bank for International Settlements, the global body for central banks, called cryptocurrencies speculative assets that in many instances enable criminal activity and “work against the public good”.

US Securities and Exchange Commission chairman Gary Gensler said earlier this month that the US will not follow China’s lead in banning digital tokens.

The world’s largest economy will focus on ensuring that the industry follows investor and consumer protection rules and anti-money laundering regulations.