When compared to the traditional currency, Bitcoin stands a very little chance of offering high financial security. The volatility of Cryptocurrency is not a surprise to anyone. The market fluctuates with huge margins, and investors get stranded on the losing side.
It witnesses a rise as well but it is always the downfall that worries a lot. The money, in any form, lost is something that could have been invested in a safer place for secured returns and a better macroeconomic condition.
Andrew Bailey’s Worry
Andrew Bailey, the Governor of the Bank of England, Andrew Bailey was recently addressing a student union at Cambridge University. He shared his worry about Bitcoin becoming a legal tender in El Salvador.
The reasons appear to be valid. For any currency to be declared a legal tender, it must ensure that the interest of the currency holder would be protected. This does not stand true for Bitcoin. The Governor of the Bank of England quoted that Bitcoin causes worry because it is highly volatile and has an unclear nature.
As a legal tender, Bitcoin still does not provide clarity to many people with high volatility putting everyone’s financial interests at stake.
The law that declares Bitcoin a legal tender was passed by El Salvador in September. This was done in spite of the International Monetary Fund issuing a clear warning on the subject. With the law passed, Bitcoin is identified as a legal currency along with the US dollar in El Salvador.
IMF, in its warning, stated that making Bitcoin a legal tender poses a huge risk to consumers and their financial integrity & stability.
Since everyone deals with currency at every level, its stability plays a key role in becoming a legal tender. Another drawback is that a currency with high volatility leads to a rise in fiscal contingent liabilities.
The warning had a little effect, or rather no effect, on El Salvador. The Bitcoin market went through a phase of high sell-off. El Salvador disregarded all the warnings to go ahead and buy 100 more Bitcoins.
In the end, Andrew Bailey expressed his worry that the Bank of England may start printing money out of thin air.
The Bitcoin market is attractive; however, it still carries a lot of risk with it. Bitcoin is a legal tender in El Salvador, but if Andrew Bailey is to be believed, then it is still a considerable risk to trade in it.