The Bank of Canada has issued new statements on bitcoin and digital currencies as part of its annual spring review.
Perhaps most notably, the central bank speculated that the stability of the financial industry could be threatened by bitcoin and its potential risks, should it develop into a widely used means of payment.
The Bank of Canada said:
“There could be potential risks to overall financial stability if Bitcoin became a significant means of payment and the Bitcoin system remained unstable.”
The comments came as part of wider report on digital currency platforms – such as Amazon Coins, Facebook Credits and World of Warcraft gold – that ultimately found that these financial instruments should monitored by central banks, though they are unlikely to become a more widely used method of payment.
The statements follow earlier statements from the central bank which suggested it believes it is still too early to predict whether decentralized digital currencies like bitcoin will enter the mainstream.
Consumer risk
Bank of Canada used to the report to reiterate the risk consumers face when using bitcoin due to the ongoing volatility in its price, as well as issues with major bitcoin exchanges.
The report said:
“In particular, given that digital currencies such as bitcoin are not regulated and do not have a centralized issuer, users bear all of the risks themselves and have no legal recourse should they wish to reverse a bitcoin transaction.”
Potential benefits
The central bank did acknowledge that the bitcoin network has the potential to improve financial services in some key areas, noting that bitcoin offers lower transaction costs than credit cards as it removes traditional financial intermediaries.
Still, it suggested that even in areas like the remittance market – where many experts believe bitcoin could benefit underbanked consumers, the volatility and security issues associated with bitcoin outweigh the potential benefits.
Despite the warnings, however, Canadian entrepreneurs remain undeterred. For more on how Canada is leading the world in the development of bitcoin ATMs, read our most recent report.
Downtown Vancouver image via Shutterstock
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