Two Barbadian economists have concluded that the country’s central bank may want to consider holding a small amount of bitcoin as part of its portfolio of foreign reserves.
In a new working paper , the authors examine the potential role cryptocurrencies could play as part of the portfolio of external assets held by a central bank, using Barbados as a case study.
The paper reads: "Within recent years, the proportion of digital transactions done using digital currencies has grown significantly. As a result, it is possible that digital currency could become a key currency for settling transactions." The paper goes on to note that the Barbadian dollar is pegged to the US dollar, and that as such, a reserve of foreign currencies keeps its money safe from speculative attacks.
While valuable in this regard, the authors state that the level of bitcoin reserves should be held in proportion to the digital currency’s use by citizens.
"Given that the proportion of transactions done by Barbadians in digital currency is not likely to exceed 10% of all transactions in the short run, it is recommended that if bitcoin is incorporated into the portfolio of foreign balances of the central bank of Barbados, that its share should be relatively small," it adds. A nascent industry
The paper pointed out that while innovative, cryptocurrencies are still very much in the early stages of adoption, meaning that it believes many issues still need to be overcome before a central bank could consider including bitcoin in its reserve portfolio.
Additionally, the paper says that a central bank must first determine whether it perceives bitcoin to be a currency or a tradable asset.
"Most early adopting jurisdictions see cryptocurrencies as assets and as such there are capital tax implications from the sale and purchase of such," adds the paper.The paper further argues […]
