ECB's Nowotny: Bitcoin unstable, too vulnerable to speculation

[VIENNA] European Central Bank governing council member Ewald Nowotny warned against accepting bitcoin as an official payment method, saying the digital currency lacked stability and was too vulnerable to speculation.

Many governments around the world are considering how to regulate and classify bitcoin, whose value surged in June to hit a record just shy of US$3,000.

In April, the Japanese government recognised bitcoin as legal tender as part of efforts to use financial technology to stimulating the economy.

"Bitcoin lacks the one thing that makes a good currency, namely stability," Mr Nowotny told Austrian daily Kleine Zeitung in an interview published on Wednesday.

"Bitcoin is an object of speculation," he said.

Like other virtual currencies, bitcoin lacks a single governing authority like a central bank. Instead, bitcoin transactions are recorded on thousands of computers across the world that maintain logs and validate transactions - technology known as blockchain.

Investors have begun warming to the technology, wooed by its explosive performance and its potential to compete with gold and government-issued money as a store of value.

Bitcoin has fallen 20 per cent since its record high in June but is still 245 per cent over the past year.

While the central bank would not prohibit bitcoins, people should be aware of the risks, Nowotny said.

Bitcoin can be traded on exchanges in the same manner as stocks and bonds. It has also become a mode of payment for some retailers, and a way to transfer funds without the need of a third party.

The ECB is doing "experimental work" with the same ledger technology that underpins bitcoin but it needs further research before considering adopting it, ECB executive board member Yves Mersch said in April.

REUTERS