It is not yet determined whether bitcoin is a currency or a tradable asset, say Barbadian economists. However, they believe that holding an amount of bitcoin may prove useful to the central bank of the island nation.

According to the local news outlet Nation News, two renowned economists, Dr Winston Moore and Jeremy Stephen, have recently published a paper on potential benefits and drawbacks of including digital currencies in the portfolio of international reserves held by the Central Bank of Barbados.

The two economists state that the proportion of digital transactions is growing every day. “As a result, it is possible that digital currency could become a key currency for settling transactions”, they say.

Besides, the dangers of bitcoin are exaggerated, they say in the paper. When such players as Citibank start supporting blockchain, the risk to the entities like the Central Bank of Barbados is minimal. As for the famous bitcoin volatility,

“The counterfactual exercise suggests that had the Central Bank of Barbados held a relatively small proportion of its portfolio in Bitcoin between 2009 and 2015, the impact on reserve balance volatility (due to exchange rate variation) would not have been significantly different from that experienced due to other major currencies.”  

However, the cryptocurrency, while being a significant innovation, is still in the early stage of adoption, say the authors. And as “the proportion of transactions done by Barbadians in digital currency is not likely to exceed ten per cent of all transactions in the short run”, they recommend, in case bitcoin becomes a part of currency reserves of the Central Bank of Barbados, to keep its share “relatively small”.

Dr Winston Moore and Jeremy Stephen are both lecturers in Economics in the University of the West Indies. Both have previously worked at the Central Bank of Barbados, the former as Senior Economist and the latter as the person responsible for economic and financial forecast.

A recent study by Magister Advisors suggests that bitcoin would become the sixth world reserve currency within 15 years.

 

Alexey Tereshchenko