Central banks could hold bitcoin and ether for the first time in 2018, cryptocurrency CEO says

Key Points
  • Central banks will begin holding bitcoin and Ethereum next year, Peter Smith, CEO of Blockchain said
  • Smith also said that central banks will begin to issue their own cryptocurrency
2018 will be the year that central banks hold digital currencies: Blockchain CEO
2018 will be the year that central banks hold digital currencies: Blockchain CEO

Global central banks will start holding digital currencies in the next year, the chief executive of a cyrptocurrency wallet platform told CNBC Monday.

"I think this year will be the first year we start to see central banks start to hold digital currencies as part of their balance sheet," Peter Smith, CEO of Blockchain, told CNBC.

Smith said that central banks would likely buy bitcoin and Ethereum as part of their reserves. Central banks hold gold and foreign currency reserves to allow them to act if there are any market shocks.

The rise of bitcoin as an asset could mean some monetary authorities will have to begin holding it.

"Bitcoin is already a top 30 currency by supply, and this trend, and pressure to hold digital currency as part of reserves will only accelerate as the price rises," Smith said.

There is a growing chorus of voices suggesting that cryptocurrencies could be bought by central banks. In an opinion article on Coindesk, Eugene Etsebeth, a former central banker with the South African Reserve Bank, said that cryptocurrencies will fulfill a new requirement as "digital gold."

"In 2018, G-7 central banks will witness bitcoin and other cryptocurrencies becoming the biggest international currency by market capitalization," Etsebeth wrote.

"This event, together with the global nature of cryptocurrencies with 24/7 trading access, will make it intuitive to own cryptocurrencies as they become a de-facto investment as part of a central bank's investment tranche."

He added that cryptocurrencies would be used in international trade.

Central bank-issued cryptocurrency

Blockchain's Smith, who spends time speaking to regulators, took it a step further and said central banks could start to issue their own "digital assets" next year.

Dan Kitwood | Getty Images

Some central banks have already started researching their own digital coins. last week, those in the United Arab Emirates and Saudi Arabia announced a partnership to issue a cryptocurrency for cross-border trade.

China's central bank also said that it could issue a new cryptocurrency.

But some authorities have warned on the dangers of the recent cryptocurrency boom, indicating that they are not ready to get involved yet. European Central Bank President Mario Draghi said digital currencies are not "mature" enough to be considered for regulation yet.

"With anything that's new, people have great expectations and also great uncertainty. Right now we think that especially as far as bitcoins and cryptocurrencies are concerned, we don't think the technology is mature for our consideration," Draghi said in October.