Switzerland report: Bitcoin “unimportant role as a means of payment”

The Federal Council of Switzerland has published a thorough, on virtual currencies. In short, Bitcoin et al do not constitute important alternatives to the Swiss franc.

The report assesses the various risks of Bitcoin, as many other governments have done previously. It assesses Bitcoin from many other angles as well. One interesting section deals with the state of Bitcoin in Switzerland. 65 merchants are reported to accept it. They even went as far as to discover that 84 out of 7706 (1.1%) of computers validating transactions on the Bitcoin network are located in Switzerland, ranking the country 13th in the world.

It concedes that Bitcoin does carry 3 of the key properties of a currency, namely: an intermediary in exchanges, a unit of account and a store of value. However, its high volatility, “opaque decentralized system” and “crisis of confidence” arising from exchange closures render it inadequate to fully function as a currency. “It is thus highly unlikely that Bitcoin could acquire a similar standing to the Swiss franc.”

The report concludes the following on Bitcoin:

“Compared with the franc, its limited dissemination in the real economy and its high value fluctuations are reasons why it currently plays an unimportant role as a means of payment….From a monetary policy standpoint, virtual currencies will not be able to threaten price stability and the stability of the Swiss financial system in the foreseeable future.”

It does concede that long-term, developments in virtual currencies are difficult to predict and the Federal Council will be keeping an eye on them.

Switzerland has long been a major global banking hub, whose institutions are regarded as bastions for safety and security. One can argue that the country is naturally less inclined towards disruptive finance. Their position is somewhat reminiscent of that of St. Louis Federal Reserve Vice President David Andolfatto, that “Bitcoin and gold make lousy money”. Both parties are heavily focused on the inner workings of traditional money and their worldviews will generally be reflective of such.