A new report from the SWIFT Institute has found that fiat currencies are more likely to crowd out digital currencies such as bitcoin. The paper, Virtual Currencies: Media of Exchange or Speculative Asset? [PDF] analyses the dynamic relationship between virtual currencies, such as bitcoin, and fiat currencies. The research looked at whether or not the design and the size of virtual currencies could pose an immediate risk to monetary, financial or economic stability. The paper found that fiat currencies are more likely to crowd out virtual currencies and that the design and size of virtual currencies deprive it of its intended use as a medium of exchange. It also found that the demand for virtual currencies by potential users increases its price which in turn attracts speculators who drive the price further up thus reducing the currency’s property as a medium of exchange with its main use of that as a speculative investment. Other key findings in the paper reported that a third of bitcoins are held by investors, particularly those that only receive bitcoins, but don’t send to others. It seems that a minority of users utilize bitcoin as a medium of exchange suggesting that at present bitcoins are primarily held for investment purposes rather than for transactions. The research stated that as the size of bitcoin investments and transactions are small compared to other assets there is no immediate risk or threat toward fiat monetary or financial stability. What is the Attraction to Virtual Currencies? Digital currencies such as bitcoin are increasing in our day-to-days lives. So much so, that more businesses are accepting the currency as a form of payment for goods and services thus attracting new users to it. According to the report, potential users of virtual currencies may be attracted by its low transaction […]
