November 23, 2017 (Windy Hill Beach, South Carolina — Paris-based bank BNP Paribas is concerned that Bitcoin could undermine the global monetary system. The bank suggests a global co-ordinated move to regulate bitcoin. Here’s the four main flaws identified by BNP Paribas:
1. Bitcoin offers no lender of last resort — every shaky European bank would certainly understand quickly the importance of this function. If there is a crisis, Bitcoin has no well-funded regulator to step in and cover losses. BNP says in that scenario consumers would rush to find real cash which could in turn create a run on banks, the biggest nightmare in the financial system.
2. Deflation — though speculators love that there is only a finite number of Bitcoins, this means you have the opposite of inflation as a looming problem. With just 16.7 million Bitcoins in circulation, the risk of inflation is eliminated but deflation, already an issue in global trade, could cause a range of problems.
3. Unreliable exchange of value — Bitcoin’s wildly fluctuating share price is perfect for traders but hell for consumers if they wish to use it in any significant fashion.
4. No profits for central banks — if Bitcoin genuinely starts to replace cash as we know it central banks will lose a key source of income called seigniorage, the profit they get from printing money. No government will want to subsidise central banks that have lost a revenue source.
Source: James Kirby (Wealth Editor), “Bitcoin’s bubble has to burst”, The Australian, Nov 23, 2017, p. 27