Denmark’s National Bank: Bitcoins Are Like Glass Beads

The Central or National Bank of Denmark, Danmarks Nationalbank, issued a stark warning about Bitcoin. In a slightly different tune

The Central or National Bank of Denmark, Danmarks Nationalbank, issued a stark warning about Bitcoin. In a slightly different tune from warnings issued by other central banking authorities in the past, the bulk of the emphasis was on the absence of fundamental value to Bitcoin, likening it to “glass beads”:

“Recently the virtual currency bitcoin has attracted considerable attention. Bitcoins are not money in a proper sense as there is no issuer behind them. Instead, bitcoins display the characteristics of a commodity to which users attach value. Unlike precious metals such as gold and silver, bitcoins have no actual utility value, bearing closer resemblance to glass beads.

Governor Hugo Frey Jensen said, “Bitcoin is a virtual currency without any value anchor and hence it may rise sharply or fall very

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suddenly. A core property of money is that its value is stable so that its purchasing power does not change markedly from day to day.”

The bank also highlighted the absence of regulation and depositor protection:

“The value of the bitcoin fluctuates strongly, and recent events such as hacking of the largest exchange for purchase and sale of bitcoins show that there are risks linked to using bitcoins. Moreover, bitcoins are neither protected by a depositor guarantee nor by consumer protection legislation.”

Jensen validated the lack of fundamental value by pointing to the scarcity of businesses accepting the coin: “In spite of the considerable focus, use of bitcoins as a means of payment remains very limited. Against that background, the risks linked to their use are currently assessed to be limited to the individual user…The European authorities are analysing the need to regulate such virtual currencies.”

France has been pushing the EU to look more into digital currencies, with the eventual end-goal being some form of regulation.

DC Magnates spoke to Michael Gronager, Chief Operating Officer at Payward Inc, which operates the Kraken Bitcoin Exchange, about the state of digital currencies in Denmark:

General Comments

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It seems like the Danish National Bank (DNB) chooses to compare Bitcoin to 1) credit cards as we know them and 2) money in the bank as we know it. And concludes that it makes some pretty bad credit card and savings, and rightfully so! Bitcoin is cash with wings and they sure fly a whole lot faster than the notes printed by the DNB. It is surprising that they do not fully grasp the value of cash, both as it is one of their main products and as it really offers some completely other, and orthogonal consumer protection values (cap on risk, privacy, transparency, etc.).

Why is it that they’ve adopted a relatively averse stance, without highlighting any of Bitcoin’s advantages as found elsewhere?

The report should be seen as a natural extension of the message from ECB and from the Danish FSA. The opposite to the report would be to recommend putting savings in bitcoins, or to recommend it for payments, the former would be extremely radical as they don’t even recommend savings in gold, the latter would also be surprising as there are no regulations around bitcoin and as such they cannot back it up. They also do mention that within virtual currencies bitcoins seems like to most promising.

Will they move to illegalize or otherwise significantly curb its use- either by individuals, businesses or financial institutions as was done in China, for example?

No, I find that highly unlikely, it is not the normal Danish stand. Denmark is very cautious regarding regulation, and often self regulation is preferred (take e.g. the Danish employment market – we are one of the most Socialist countries and we don’t have  a minimum salary!).

What could happen would be enforcing VAT on bitcoin as is usual the perfect weapon agains barter. Still, in the report they acknowledge that bitcoin is used as a payment instrument and that kind of already blocks them rhetorically against going further in that direction?

Would they move to support it or regulate it in tandem with the population if there’s enough demand- or at least do so in conjunction with the broader EU?

I think they will just follow EU and ECB. I don’t expect any profiling on digital currencies from Danish side – neither rough or soft.

Any other insights?

I think it is worth noting that the DNB is pro cash! It is one of their main products and I have been in panels with reps from DNB where that were stressed. That is to some extend in contradiction with normal banks, that would rather get rid of cash. Pro or con cash pretty much depends on whether you believe that payment and ID should be the same or separated.

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