A new report by Bank of Canada researchers suggests that Bitcoin and other digital currencies won’t succeed on a long-term basis without greater government regulation. To reach that conclusion, the report draws historical comparisons to a period in the 1800s when Canadians had access to government-issued currencies known as Dominion notes as well as other notes issued by private banks.
In the report, titled Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies, the researchers assert that the historical circumstances of that era are similar to the current situation with government-issued fiat currencies and decentralized private cryptocurrencies.
Based on evidence drawn from their study of the later 1800s, the researchers conclude that there are several likely outcomes for digital currencies. They assert that digital currencies are unlikely to be inflationary, but could be vulnerable to counterfeiting. They also predict that central bank efforts to create their own digital currencies are unlikely to drive private cryptocurrencies out of the marketplace.
Most important, however, is the researchers’ assertion that these decentralized digital currencies won’t be truly secure or accepted as a uniform currency unless government becomes more involved in regulating the industry. The report suggests:
“[W]ell designed and managed private digital currencies could circulate widely but only with appropriate government regulation to ensure their safety, soundness, and uniformity.”