In brief
- A former top banker and economist said people see value in Bitcoin, similar to gold.
- However, its volatile nature makes Bitcoin a store of value than an alternative currency like Libra.
- He further raised questions around the government's handling of user data once CBDCs are launched.
The former governor of the Reserve Bank of India and former chief economist of the International Monetary Fund, Raghuram Rajan, said Thursday he sees Bitcoin and central bank digital currencies (CBDCs) working alongside each other, according to CNBC.
Rajan, currently a finance professor at the University of Chicago, is known for predicting the 2008 recession in 2007 and spearheading India’s economic recovery in the past decade. And his long-term outlook for Bitcoin is positive, if not as a replacement of fiat currencies.
“Bitcoin is a little bit like gold. In fact, gold has some value because we value it for jewelry, but [with] Bitcoin you can’t even do that. Nevertheless, it has value because others think it has value,” Rajan said.
He added that private digital currencies like Facebook’s Libra, a stablecoin currently under development and backed by various fiat currencies, will serve as a medium of transaction instead of volatile assets like Bitcoin.
“Different private currencies will do different things and it may be Bitcoin has value going forward just as a store of value, or as a speculative asset. While Libra may be the kind of currency which is used more for transacting,” said Rajan.
Who handles the data?
Meanwhile, the former banker expressed concerns over central governments tracking user data if state-issued digital currencies are eventually launched. “The beauty of the cash in our hands is that it’s anonymous. Even if you’re not doing something illegal you don’t want the government seeing everything you do,” said Rajan.
He further raised questions around how digital currencies will operate once rolled out, considering the current benefits of using cash, “What are countries going to do with data collected from abroad on who uses their currency?” asked Rajan.
“If somebody uses foreign digital currency to buy certain services that could compromise them, can they be liable to espionage and blackmail, et cetera? And those are concerns that are not farfetched in today’s world,” he ended.
Rajan had previously expressed concerns over Bitcoin as a currency alternative in 2014, calling its volatility a major cause for concern. However, he has been a proponent of digital currencies, stating their rise was inevitable in a conference in 2015.
For now, apart from foreseeing a somewhat positive future for Bitcoin and digital currencies, Rajan’s also raising some valid—and perhaps understated—questions.