- UBS Wealth Management economist Paul Donovan says that cryptocurrencies like bitcoin can never truly be considered currencies.
- “A currency has to be a widely used medium of exchange. Cryptocurrencies are never going to achieve that. Period.”
- They fail key tests for what a currency actually is, including that they cannot be used as a store of value.
LONDON — Cryptocurrencies like bitcoin and ethereum will never become true currencies thanks to a series of “fatal” flaws, a senior economist at Swiss banking giant UBS has said.
Speaking at a roundtable discussion attended by Business Insider on Thursday, Paul Donovan, the global chief economist at UBS’s wealth management arm, tore into the argument that cryptocurrencies could eventually replace fiat currencies like the pound and the dollar.
“The problem that cryptocurrencies face is that they fail the two key metrics of what makes a currency a currency,” Donovan said. “A currency has to be a widely used medium of exchange. Cryptocurrencies are never going to achieve that. Period.”
One of the main reasons for this, Donovan said, is to do with taxation, and the inability to use cryptocurrencies to settle tax liabilities.
“The reason I’m so definite about this, is that if you look in the OECD, on average, 34% of all economic activity is taxed,” he said.
“Governments are not likely to accept cryptocurrencies that they do not control” to settle taxes.
“Cryptocurrencies that they do not control will not be accepted by governments for tax payments. You are therefore removing one of the main sources of demand for a currency. One of the key issues whenever we talk about monetary economics, is that the money supply should never, ever, ever be considered in isolation.
“Money supply needs to be considered against money demand. If you do not have the ability to use cryptocurrencies for the largest single transaction in the Read More Here