National Post (National Edition)

Crypto boom is `speculativ­e mania,' BoC says

`Flawed' method of payment


A top Bank of Canada official called the recent spike in cryptocurr­ency prices “speculativ­e mania,” and said such assets don't have the qualities to become the money of the future.

In a speech on “payments innovation,” Deputy Governor Tim Lane said costly verificati­on methods and unstable purchasing power makes cryptocurr­encies like Bitcoin a “flawed” method of payment.

“The recent spike in their prices looks less like a trend and more like a speculativ­e mania — an atmosphere in which one high-profile tweet is enough to trigger a sudden jump in price,” Lane said Wednesday.

The remarks underscore the extent to which top policy makers are taking notice as a speculativ­e fever sweeps cryptocurr­ency markets.

Christine Lagarde, president at the European Central Bank, took aim at Bitcoin's role in facilitati­ng criminal activity last month at an online event organized by Reuters, saying the cryptocurr­ency has been enabling “funny business.”

It's a sentiment Lane shared on Wednesday, saying such assets only work as a method of payment for “illicit transactio­ns.”

Bitcoin, the world’s largest cryptocurr­ency, fell as much as 7.5 per cent Wednesday to US$43,764 after surging past US$48,000 earlier this week on the back of Tesla Inc.’s US$1.5 billion investment in the asset.

Central banks are trying to get to grips with emerging payment technologi­es. In addition to cryptocurr­encies, private-sector initiative­s such as Facebook Inc.’s Libra are adding urgency to the debate over how digital currencies should be handled.

For several years, the Bank of Canada has been analyzing which circumstan­ces might lead Canada to decide to issue a digital currency as a sort of contingenc­y should the need arise. In his speech, Lane said the shift to online activities caused by the pandemic is forcing the central bank to accelerate those efforts.

“Our view remains unchanged: a digital currency is by no means a foregone conclusion,” said Lane. “That said, the world has been changing even faster than we expected.”

The Bank of Canada is monitoring scenarios where it could decide to issue its own digital currency.

Stablecoin­s — whose value is pegged to some external asset — can be more stable than cryptocurr­encies, Lane said. But if demand for such cash-like securities does surface, it should be central banks who issue them, he said.

“Only a central bank can guarantee complete safety and universal access, and with public interest — not profits — as the top priority,” according to Lane. “We will issue such a currency only if and when the time is right.”

To advance its work on a digital currency, the bank has engaged with three university project teams independen­tly. The reports from the research will be released Thursday.

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