Hélder Rosalino, a director at Portugal’s Central bank, Banco de Portugal (BdP), recently spoke to Portuguese publication ECO about bitcoin, cryptocurrencies, blockchain technology, and Fintech in general. To Rosalino, it’s important that people know “a cryptocurrency isn’t a currency” to Portugal’s central bank.
To the director at the financial institution, a currency needs to both store value and have the ability to be used as credit. Per Rosalino, when a central bank issues currency, it’s creating a liability on its balance sheet that needs to be paid. He stated (roughly translated):
A currency, to be classified as such, needs to have two fundamental characteristics: The first is to associate itself with the idea of store of value, then, on that currency there must be a right to credit. When a central bank creates a currency, it creates a liability on its balance sheet that has to be paid. If, one day, everyone was to hand that currency over to their banks, than the central bank would have to pay, and the liability would be eliminated.
To the central bank’s director, Fintech’s advantages are merely technological, as he sees great potential in blockchain technology, and not in cryptocurrencies like bitcoin. He added that a cryptocurrency isn’t issued by a central bank, nor is it regulated by any financial institution that gives it the right to be used as credit.
As such, Rosalino concludes that a cryptocurrency isn’t a currency per se, but recognizes that it has incredible disruptive potential. He stated:
[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 it is not a coin, so we look at cryptocurrencies with concern and caution because, recognizing the disruptive innovation associated with them, there are several risks.
When asked about the risks associated with cryptocurrencies, Hélder Rosalino quickly pointed to its “speculative dimension.” To him, as cryptocurrencies like bitcoin are generated through mining, and as its amount is limited, demand surges and speculation ensues. The rise in demand leads to a second problem, volatility. Per Rosalino’s words, 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, Just Like Any Other Country, Needs Bitcoin
His final comments were on counterparty risks, as on most bitcoin transactions it’s nearly impossible to tell who’s on the other side. Plus, the financial institution’s director cited 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 penal domain’s attention due to the risk of fraud and money laundering. Central banks are still going through a studying phase on a “new reality, that’s being evaluated.”
His words come at a time in which bitcoin hits a new all-time high above $7,800 as the SegWit2x hard fork got called off. After reaching the all-time high the cryptocurrency’s price has fallen to the $7,200 level following a sell-off from B2X-expecting investors.
As covered by CCN, Portugal is a country in which the government wants to tax bitcoin users, despite the lack of regulations.
Update: A previous version of the article erroneously named Hélder Rosalino as the central bank’s governor, when he is indeed a direcotr at the financial institution.