On August 23, 2017, the governor of the Mexican central bank, Agustín Carstens, explained to a student audience at Instituto Tecnológico Autónomo de México that bitcoin lacks a central bank and the backing of a tax-collecting nation. For these reasons, in a presentation entitled “The Challenge of Financial Institutions,” Carstens declared that bitcoin does not qualify as currency.
For traditional currency, a central bank controls the money supply and designs monetary policy (i.e., setting interest rates and conducting open market operations). A central bank also functions as the “lender-of-last-resort,” supporting banks and other commercial institutions that experience financial trouble. During the 2008 financial crisis, the Federal Reserve Bank of New York lent $29 billion to JPMorgan Chase, which bought out the failing Bear Stearns.
The American government’s support for the dollar occurs in other ways, too. The Federal Deposit Insurance Corporation, or FDIC, is “backed by the full faith and credit of the United States government.” To support the dollar, the independent agency guarantees up to $250,000 per depositor per insured bank, for each account ownership category. This can help prevent bank-runs, which threaten the economic stability of the nation. On its website, the agency proudly announces, “Since the FDIC was established in 1933, no depositor has lost a penny of FDIC-insured funds.”
As a decentralized store of value, bitcoin does not possess equivalent institutional infrastructure. A central bank does not print bitcoin nor design its monetary policy. And, a sovereign nation does not claim bitcoin as its own to provide financial sustenance in the event of exchange failure or a “bitcoin run.” Although the FDIC provides dollar insurance at some exchanges, this protection does not extend to digital assets.
The governor of the Mexican central bank asserted that bitcoin is more commodity than currency because “there is nothing to ensure its accounting in a financial system.” But, his claim might not be so clear-cut. Carstens bows to institutions as an indicator of value rather than appreciating the functionality of virtual money. Perhaps, it’s most sensible to examine how bitcoin is used, rather than the details of its creation or regulation.
While it’s not a traditional currency by any stretch, in many cases, vendors like Tesla accept bitcoin like regular, fiat money. For now, all we can say is that bitcoin is a store of value. It doesn’t fit neatly into any specific category – bitcoin is its own thing. Governments and regulators have struggled – and will continue to struggle – to fit bitcoin within existing regulatory frameworks.
There’s also reason to believe that Carstens’ knowledge of bitcoin is limited. During his speech he referenced the apparent anonymity afforded by bitcoin, falling victim to a common misconception. In fact, complete anonymity is not guaranteed as investigative firms like Chainalysis can help governments and corporations trace transactions.
Regardless of Carstens’ understanding or lack thereof, he signaled Mexican regulatory interest, announcing that "financial authorities will soon present" proposed regulations for las tecnologías financieras, otherwise known as “fintech.” It remains to be seen whether Mexican regulators themselves will classify bitcoin as a commodity or a currency.