In remarks at a Swiss Finance Institute event in Zurich on Wednesday, UBS Group AG chairman Axel Weber offered his perspective on bitcoin. “I often get asked why I’m so skeptical about bitcoin,” said Weber. “It probably comes from my background as a central banker.”
Weber, the one-time president of Deutsche Bundesbank (Germany’s central bank), continued, “The important function of a currency is, it’s a means of payment, it has to be generally accepted, it has to be a store of value and it’s a transaction currency.”
According to Weber, bitcoin does not meet the full standards of a currency. Bitcoin, he said, is “only a transaction currency.”
In foreign-exchange trading, the transaction currency (also referred to as base currency) is the first currency listed in the currency pair. It’s unclear whether Weber’s analysis was based on this definition or some other understanding, but he does not regard bitcoin as a viable medium of exchange.
Weber’s statements actually echoed those of Banco de México governor Agustín Carstens. Each financier has expressed reservations about bitcoin’s lack of government backing. Previously, in a November 2015 discussion at the Bank of England’s Open Forum, Weber suggested that “because there is no lender of last resort [for bitcoin] – there will always be boom and bust.” More recently, ex-hedge fund manager Michael Novogratz similarly claimed that cryptocurrency is not currency – at least, not in the way that we traditionally understand money.
One of the major challenges to mainstream usage of cryptocurrency is its volatility. As the price of a cryptocurrency changes day-to-day and even hour-to-hour, holders might be hesitant to spend the digital money. They don’t know whether something bought today would be worth relatively more or less if they just waited. Because of exchange-rate risk, consumers might delay cryptocurrency purchases or forgo such transactions altogether. The danger is that this might cause a deflationary spiral.
Weber wasn’t all doom and gloom, however, and indicated blockchain technology might become widely accepted over time. Earlier today, a collection of banks including Commerzbank AG, Erste Group Bank AG, and Caixa Bank SA joined an initiative by UBS and IBM to use blockchain technology in trade finance transactions.