Bank of Canada Says Crypto Price Volatility is an “Obstacle”

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  • Bank of Canada blames cryptocurrency’s extreme price volatility as the obstacle hindering the assets from being accepted as a payment method.
  • Bank of Canada is developing its own CBDC to use if the need emerges.
  • The US will release a research paper this summer that explores moves toward a CBDC.

Cryptocurrency is no stranger to extreme price volatility, 50% price correction and 10x gains are more than frequent. In fact, it is this sharp volatility that creates unique and unparalleled opportunities for profit, as well as the possibility of huge losses if not invested with great caution.

The latest authorization to address this extreme volatility is the Bank of Canada. In a statement released on Thursday, the bank said that the extreme price volatility present in cryptocurrencies is the greatest obstacle that prevents the general public from using them as a means of payment.

The bank mentioned it is monitoring the crypto market, which has attracted hordes of new investors from all around the world — Canada not being an exception. Despite the increasing interest in these assets, the cryptocurrencies hold high risk as their intrinsic value is hard to establish, the Bank of Canada said in its annual review of the county’s financial systems.

Price volatility stemming from speculative demand remains an important obstacle to the wide acceptance of cryptoassets as a means of payment.

The Bank of Canada then added that cryptocurrencies are not presently of “systemic importance” in the country, however, that is subject to change if a leading technology firm issues a crypto token that then becomes broadly accepted as a digital payment method.

Bank of Canada is Developing its own CBDC

Following the footsteps of China and many other central banks, the Bank of Canada is also developing its own cash-like central bank digital currency (CBDC) to use when the need arises.

According to the bank, an alternative that helps escape the volatility of mainstream cryptocurrencies like Bitcoin and Ethereum is stablecoins, if backed by government currency. “Unless stablecoins are backed exclusively by Canadian dollars, their widespread adoption could inhibit the Bank’s ability to implement monetary policy and act as lender of last resort,” the bank said.

China Leads the CBDC Race

China has been working on developing a national digital currency (digital Yuan) since 2014. The country has already started real-world trials for its digital currency in several cities including Shenzhen, Chengdu, and Suzhou.

Earlier this year, the UK launched a Central Bank Digital Currency (CBDC) Taskforce with the purpose of exploring the potential of a state-backed digital currency.

However, the US is barely moving forward to develop its own digital currency. According to the latest updates, the Federal Reserve will release a research paper this summer that explores a move towards a central bank digital currency.