Bitcoin is a Terrible Payment System Says RBA Governor

Even as bitcoin closes in on US$18,000, it’s not short on sceptics.

The latest to downplay the digital coin is Philip Lowe, governor of the Reserve Bank of Australia (RBA).

Lowe called bitcoin a ‘speculative mania’. But of course that’s what you’d expect a central banker to say.

Don’t go for this new digital currency. Trust us, the banks, to control the supply of money.

However in a speech, Lowe does make some very valid points.

The value of Bitcoin is very volatile, the number of payments that can currently be handled is very low, there are governance problems, the transaction cost involved in making a payment with Bitcoin is very high and the estimates of the electricity used in the process of mining the coins are staggering.

When thought of purely as a payment instrument, it seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions.

So the current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment.

Concerns about bitcoin are not new

Lowe’s concerns are not new. I’m sure even bitcoin fanatics would agree with most of Lowe’s points. The digital coin is looking a lot less like a currency.

Take a look at the graph below. It shows the skyrocketing transaction costs of bitcoin.

bitcoin transaction costs

Source: arstechnica

Your transaction fee will also dictate how long it takes to transfer bitcoins from one party to another.

That’s why most bitcoin bulls now see it as a new form of gold. It’s the gold for a younger generation.

As the South China Morning Post writes:

Gold is much less useful still as a medium of exchange. Yet, many investors hold gold in their portfolios as a hedge against inflation. Many such investors have a libertarian streak, holding gold because they do not fully trust central banks, like the US Federal Reserve, to keep inflation in check.

‘…More and more investors now hold bitcoin. According to an article in Fortune last month, more people are searching online for how to buy bitcoin than gold.

Many think the price will keep going up. But many are interested for the same reason people invest in gold; its price is seen as independent of other prices and of fiat currency inflation. Therefore, like gold, it can be a store of value for a portion of an investor’s assets.

Cheers,

Härje Ronngard,

Junior Analyst, Money Morning

PS: Want to find out more about the secret world of bitcoin? Click here.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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