Central Bank issued digital currency provides stability, but crypto is too volatile

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Kiel Institute for World Economy researches have concluded that digital currencies issued by banks can provide more stable financial system while on the other side cryptocurrencies as a whole have been deemed as unstable.

In this report that will serve as a guide in the ECON Committee of the European Parliament a strong difference has been made between digital currencies and cryptocurrencies like Bitcoin. It has been stated that cryptocurrencies are not a good alternative solution to the traditional central bank currencies as it continues:

“Currently, cryptocurrencies such as Bitcoin could not supplant traditional currencies to any significant degree. The available technology faces severe limitations regarding scalability. In particular, it would be prohibitively expensive to conduct even a moderate share of the transactions now handled via traditional currencies through cryptocurrencies.”

Instead of cryptocurrencies being used as a medium of exchange, they have been so far just a primary vehicle for financial speculation – the report states. The value of these coins have not been a fixed one so they can not bee valued rationally which will lead to a strong price fluctuations and those will bring even more speculators. And of course not to forget the lack of regulation that is raising the non-transparency issue.

Digital currencies can be a great opportunity for central banks as the report states:

“To avoid recurrent instability of the banking system, commercial banks would need to come up with more reliable funding sources than deposits. As the fractional reserve character of the current banking system can be a major source of instability, such a disruptive change is not necessarily a a bad development, but could finally pave the way for a more stable financial system.”