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Digital Currencies
What are Cryptocurrencies? their use as a new and unique system for making
payments. Related to this, there has also been
Cryptocurrencies are digital tokens. They are a type a high degree of volatility in the prices of many
of digital currency that allows people to make cryptocurrencies. For example, the price of Bitcoin
payments directly to each other through an online increased from about US$30,000 in mid 2021 to
system. Cryptocurrencies have no legislated or almost US$70,000 toward the end of 2021 before
intrinsic value; they are simply worth what people falling to around US$35,000 in early 2022. Rival
are willing to pay for them in the market. This is in cryptocurrencies like Ether have experienced
contrast to national currencies, which get part of similar volatility. The extraordinary interest in
their value from being legislated as legal tender. cryptocurrencies has also seen a growing amount
There are a number of cryptocurrencies – the most of computing power used to solve the complex
well-known of these are Bitcoin and Ether. codes that many of these systems use to help
protect them from being corrupted. Despite the
Activity in cryptocurrency markets has increased
increased level of interest in cryptocurrencies, there
significantly. The fascination with these currencies
is scepticism about whether they could ever replace
appears to have been more speculative (buying
more traditional payment methods or national
cryptocurrencies to make a profit) than related to
currencies.
Cryptocurrency Prices
$US $US
60,000 6,000
Bitcoin (LHS)
40,000 4,000
Ether (RHS)
20,000 2,000
0 0
2014 2016 2018 2020 2022
Source: Coindesk.com
Transaction
Block
Alice
66925flda83c5435
da73d81e013974d
4 Miners compete to find the code 5 Once the code is solved, the 6
that will add the new block to the block is added to the blockchain Bob receives the cryptocurrency.
blockchain. and the transaction is confirmed.
Bob
Surveys conducted by the Bank for International What Are Some of the Public
Settlements indicate that CBDCs are an active
area of research for nearly all central banks. Policy Implications?
Despite this, only a few central banks have Some of the technology behind cryptocurrencies
actually issued digital currencies – to date no high raises a number of considerations for public
income country has issued a CBDC. The Reserve policymakers. Given the anonymity provided by
Bank remains cautious about whether issuing a cryptocurrency systems, and their worldwide
CBDC would be in the public interest. Primarily, reach, there are questions about how to
this is because many of the benefits of CBDCs limit the use of digital currencies for criminal
have largely already been realised by existing activities. In addition, the current fascination
technologies. In a 2021 speech, the Head of with cryptocurrencies has potentially added to
Payment’s said: the speculative nature of these markets, and has
Reserve Bank staff have not been convinced to raised concerns around consumer protection. If
date that a strong policy case has emerged in cryptocurrencies were to be more widely adopted,
Australia for a CBDC. The primary reason has been they could also present some challenges for the
that Australia’s existing electronic payments system role of the banking sector and raise additional
already provides households and businesses with financial stability concerns in a crisis. Furthermore,
a wide range of safe, convenient and low cost the vast amounts of electricity used in the
payment services. mining of cryptocurrency raise concerns about
the allocation of resources and environmental
consequences of these payment systems.
For more information about the risks involved with
cryptocurrencies, see ASIC’s MoneySmart website.
References
Lowe, Philip (2021), ‘Payments: The Future?’, Address to the 2021 Australian Payments Network
Summit, 9 December 2021
Richards, Tony (2021). ‘The Future of Payments: Cryptocurrencies, Stablecoins or Central Bank Digital
Currencies?’, Address to the Australian Corporate Treasury Association, 18 November.