Susan Wood interviews Kirk Hope
The CEO of the New Zealand Bankers’ Association Kirk Hope told TVNZ’s Q+A programme that a decentralised digital
currency like Bitcoin could present problems for Governments.
Bitcoins can be used to buy and sell items anonymously online.
“That’s one of the challenges, I think, for governments. We’ve got some anti- money laundering legislation coming in to
force here on the 30th of June. Bitcoins are untraceable, virtually, and they are being used to buy things like arms and
drugs, so those types of activities can lead themselves to the types of things that governments are trying to prevent.”
The digital currency also means governments and banks are cut out of financial transactions, which is of concern to
bankers.
“Well, I think one of the interesting things about Bitcoin is that it is a cheap way to transfer funds internationally,
and that’s one of the things that have been picked up.”
Kirk Hope isn’t ruling out banks becoming involved if digital currencies like Bitcoin were to take off.
“Only to the extent that electronic currency overtook, you know, normal currency, and actually the issuance of normal
currency has been rising, so they’re making more money off the seinorage, the issue. What I’d say probably is that if
it’s not Bitcoin it might be some other type of digital currency that could come into play because Bitcoin’s capped out
at 21 million Bitcoins, if you like. That’s the maximum amount that can ever be on issue, we understand. But that
doesn’t mean that some other player couldn’t come into the market, and, you know, that might be a bank.”
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Q+A
SUSAN WOOD INTERVIEWS KIRK HOPE
SUSAN WOOD
Ever heard of Bitcoins? If the answer’s no, you are not alone. They are the equivalent of digital gold - a completely
decentralised digital currency that can been used to buy and sell items anonymously online. And therein lies one of the
problems - Bitcoins can be used to buy drugs, weapons or pornography, and anything else, really, and they cannot be
traced. And that is worrying governments and the banks, who are being cut out of the financial loop. But will Bitcoins
or some other digital currency eventually overtake dollars and cents? Kirk Hope is CEO of the New Zealand Bankers
Association. Good morning.
KIRK HOPE, CEO, New Zealand Bankers Association
Morning.
SUSAN So what are Bitcoins?
KIRK Well, they’re a new type of digital currency. We’ve seen different types of digital currency before, I
mean, linden money in Second Life. Everyone’s heard of Second Life, I think. And so this is just a new form of this type
of currency. As you said in the outline, the issue with it is that it is an unregulated currency. It’s capped, we
understand, at around 21 million Bitcoins, so what that means is that when people are buying and selling the currency it
can have quite a high level of volatility.
SUSAN It’s already had that, hasn’t it? $20, $250 to $150, I think, since February.
KIRK And it maxed out at $300. So one of the challenges with digital currency, or, sorry, electronic currency
is what happens- For example, there was a case in the States where a man lost $7000 Bitcoins, which at that point was
the equivalent of $1 million.
SUSAN How did he lose them? You don’t drop them in the street.
KIRK His computer crashed. It’s as simple as that. So one of the challenges with this form of currency is how
you hold on to it. Some other examples where fraud takes place - so, you know, you might lose your money card or
something like that. This can happen with Bitcoins as well. So you have a thing called an Instawallet. With the
Instawallet, it’s an electronic wallet. Lots of people who are trading Bitcoins had their Instawallets hacked, so they
lost their currency.
SUSAN How do you get hold of Bitcoins?
KIRK So it’s a peer to peer network, right? It’s very much like BitTorrent, which is a file-sharing system. So
it works pretty much like that. So you have a network, you download a piece of software and then you go and create
Bitcoins through an algorithm.
SUSAN But you’re paying real cash for these Bitcoins?
KIRK No, what you do is you log on to the network and the faster your computer, the quicker you can get
Bitcoins. So what you find there also is that you have hackers coming in to expand the power of their computer by using
other people’s computers to create more Bitcoins.
SUSAN Sounds almost like an online game, to some extent.
KIRK Well, I think that’s one of the reasons why it’s been quite popular, because it does sit outside, you
know, it is a little bit like a game.
SUSAN Also very easy to use for illegal activity, because they are untraceable, so, you know, pornography, drugs,
weapons, whatever you wanted to.
KIRK Absolutely, and that’s one of the challenges, I think, for governments. We’ve got some anti money
laundering legislation coming in to force here on the 30th of June. Bitcoins are untraceable, virtually, and they are
being used to buy things like arms and drugs, so those types of activities can lead themselves to the types of things
that governments are trying to prevent.
SUSAN On the counter of that, though, some legitimate businesses are accepting them, aren’t they? You can buy a cup
of coffee with Bitcoins in some places.
KIRK Except you wouldn’t want to pay $300 bucks for your cup of coffee.
SUSAN No, you would not. How concerned are the banks about this? Are they worried?
KIRK Well, I think one of the interesting things about Bitcoin is that it is a cheap way to transfer funds
internationally, and that’s one of the things that have been picked up.
SUSAN Yes, because it cuts out those foreign exchange transactions which you guys make a lot of money on.
KIRK Of course, but I think the point about that is that the volatility and the value of Bitcoins has meant
that if you start your transaction at this point in time and then 10 hours later your transaction’s completed, what
might have happened in the interim is that the value of the Bitcoin has changed quite significantly. So you’ve either
underpaid or overpaid for the goods. So that’s another challenge for Bitcoins.
SUSAN Of course, the control also, I believe 80% of it controlled out of one registry or exchange in Japan, which is
unregulated, isn’t it?
KIRK Yeah, that’s right. It’s all unregulated. That’s right.
SUSAN We’ve seen the volatility. We also see the Reserve Bank making $200 million bucks a year printing the cold
hard currency. If these electronic currencies were to take off, they’d lose that income.
KIRK Only to the extent that electronic currency overtook, you know, normal currency, and actually the issuance
of normal currency has been rising, so they’re making more money off the seinorage, the issue. What I’d say probably is
that if it’s not Bitcoin it might be some other type of digital currency that could come into play because Bitcoin’s
capped out at 21 million Bitcoins, if you like. That’s the maximum amount that can ever be on issue, we understand. But
that doesn’t mean that some other player couldn’t come into the market, and, you know, that might be a bank.
SUSAN Oh really? So that is something the banks are now looking at?
KIRK No, well, what I’m saying is that it could be any participant in a payment system.
SUSAN So it doesn’t necessarily have to be some shady- Because this is pretty shady. We’ve got a name, we don’t
actually even know who created these things. Who knows? Is this the way of the future? Will we all have electronic
wallets and not be carrying round the cold hard cash, in a different sort of currency? In an international currency like
this, if you like?
KIRK Well, I think we’re already seeing a little bit of that with the move to mobile payments. Much quicker,
simpler faster transaction mechanisms. And we are seeing a big move to wallets in those forms. So I think the answer is
inevitably yes.
SUSAN There’s a real appeal, I think, from the punter’s point of view that you’re not paying transaction fees,
you’re not paying foreign exchange fees. If the banks were to get involved, how would they make their money on things
like this?
KIRK Well, exactly in the same way that they’re making money off mobile payments and mobile payment systems. So
it’ll be very very low value and very low value transactions, so still very competitive.
SUSAN IRD - I mean, this is a good way to cut the IRD out of the loop. They must be concerned too.
KIRK I’d imagine, because I think they’ve said that you should treat these transactions like a foreign currency
transaction, and they are taxable. I suspect tax isn’t being paid on Bitcoin transactions, to be honest.
SUSAN You would think not.
KIRK No.
SUSAN All right, so a matter of watching this space. If not Bitcoins, well, there will be other players in this,
won’t there? We’ve seen some, and they’ll continue to turn up.
KIRK I suspect so, yeah.
ENDS