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Hélder Rosalino, a director of the Portuguese central bank, Banco de Portugal (LoP), has recently spoken to a Portuguese publication. ECO on bitcoin, crypto-currencies, blockchain technology and Fintech in general. For Rosalino, it is important that people know "a cryptocurrency is not a currency" at the central bank of Portugal.
For the director of the financial institution, a currency must both store value and have the ability to be used as credit. By Rosalino, when a central bank issues a currency, it creates a liability on its balance sheet that has to be paid. He stated (roughly translated):
A currency, to be classified as such, must have two fundamental characteristics: the first is to associate it with the idea of a store of value, then, on this currency, there must be have a right to credit. When a central bank creates a currency, it creates a liability on its balance sheet that must be paid. If, one day, everyone had to hand over this money to their banks, then the central bank would have to pay and the liabilities would be eliminated.
For the director of the central bank, the benefits of Fintech are purely technological, because he sees a great potential in blockchain technology, and not in cryptocurrences like bitcoin. He added that a cryptocurrency is not issued by a central bank and that it is not regulated by any financial institution that gives it the right to be used as credit.
As such, Rosalino concludes that a cryptocurrency is not a currency in itself, but recognizes that it has an incredible disruptive potential. He declared:
[A cryptocurrency] is a convention, a computerized solution based on a very powerful technological base, a fantastic network, the blockchain, which allows payments without intermediation. It allows me, through a virtual currency, to make peer-to-peer transactions without brokerage outside the financial system. But this is not a coin, so we look at crypto-currencies with concern and caution because, recognizing the disruptive innovation associated with them, there are several risks.
Asked about the risks associated with cryptocurrencies, Hélder Rosalino quickly underlined his "speculative dimension". For him, crypto-currencies like bitcoin are generated by mining and its quantity is limited, demand increases and speculation ensues. The increase in demand leads to a second problem, volatility. According to Rosalino's terms, the volatility associated with cryptocurrencies is too high, and it's the central bank's duty to train and protect consumers.
Also read: Op-ed: Portugal, like any other country, needs Bitcoin
His last comments were about counterparty risk, because on most bitcoin transactions, it's almost impossible to tell who's on the other side. In addition, the director of the financial institution reported legal concerns, as he warned: "It may not be possible to exchange a virtual currency for a currency accepted by regulators and central banks ".
That said, Rosalino added that cryptocurrencies are now under the attention of the criminal field because of the risk of fraud and money laundering. Central banks are still studying a "new reality, which is being evaluated."
His words arrive at a time when bitcoin reaches a new historical record above $ 7,800 while the SegWit2x hard range has been canceled. After reaching its highest historical level, the price of cryptocurrency has fallen to the level of $ 7,200 following a massive sell-off of investors expected by B2X.
As the SCC says, Portugal is a country in which the government wants to tax the users of bitcoins, despite the lack of regulation.
Flickr / RTP Featured Image.
Update : An earlier version of the article wrongly named Hélder Rosalino as governor of the central bank, while he is actually director of the bank. ;Financial institution.