BNP Paribas: Lack of Support From Central Banks Limiting Bitcoin Prospects
November 21, 2017
Bitcoin is being criticized for many reasons: use in criminal activities, speculative nature, harm to the environment. The European financial conglomerate BNS Paribas joined the critics and expressed the opinion that the future of the cryptocurrency is limited due to Bitcoin's lacking a lender of last resort, since it is not supported by central banks.
The BNP Paribas report states that Bitcoin faces significant risks because of the lack of support from central banks. The conglomerate criticized the cryptocurrency for the deflationary nature (due to limited emission), high volatility and lack of regulation. BNP Paribas believes that the increase in Bitcoin's cost forces the owners of the cryptocurrency to store it, rather than spend it, which leads to liquidity risks.
"The potential threat to the right of central banks to issue money, use in money laundering, tax evasion, other criminal activities and lack of financial stability make it possible to start regulating Bitcoin all over the world," the statement said.
The main reason for BNP Paribas' concern is that in case a new global financial crisis breaks out, as in 2008-09, there will be no central authority that could regulate Bitcoin and products based on it.
National central banks are considered to be lenders of last resort. If a commercial bank lacks cash and suffers from low liquidity, it can apply to its national central bank, which will help it with providing liquidity. Cryptocurrencies are decentralized, and therefore the existence of such a body, which will help them in case of low liquidity, is impossible. BNP Paribas considers the presence of a central body providing security and support absolutely necessary for currencies.