The seemingly synchronized messages of the United States Federal Reserve, the European Central Bank and the People’s Bank of China have further ascertained the notion that these assets, which their fans claim to be a currency, do have significant speculative elements that authorities can influence or even suppress. But to assume the price movements are all about speculation is to lose the bigger picture.

Casual observers are still puzzled by the fact that these newcomers, created in the aftermath of the 2007/08 global financial crisis, manage to share the same alternative investment status with gold, God’s old money. In fact, going through some near-death experiences before the COVID-19 pandemic did little to prevent the rise of cryptos to the current prominence. On top of that, exploring the nonspeculative elements might also help authorities regulate this type of “unclear thing”, which at times can act like a currency, a service, a contract or as an independent entity in and of itself.

To begin with, this “unclear thing” is neither a financial asset nor a currency. Though many transactions use them as a medium of exchange, cryptos are still not considered a financial asset by the generally accepted classifications.

In the International Monetary Fund guidelines, for example, each claim on a financial asset must have a corresponding financial liability from other counterparties. To illustrate, as owning a certificate of deposit automatically incurs a corresponding liability to the issuing bank, the certificate is a financial asset. Similarly, a currency is a financial asset because the issuing authority guarantees the money in circulation and thus, has a liability to the holder. On the other hand, owners of Bitcoin or other cryptos cannot force anyone to honor the assigned financial value, say US$100; hence, obliging them to pay the crypto owners that prevailing amount of $100.

The classification makes it hard for financial authorities to exert jurisdiction over cryptos. It would be akin to extending regulatory power over jade stones and flower markets. Even if their prices fluctuate sharply and many people invest in them, financial authorities will certainly struggle to derive power from statutes to regulate these valuables. For that reason, cryptos usually fall within the jurisdiction of commodity market authorities.

The story might be different if there is a monetary authority using cryptos as reserves. Generally, gold owned by the public is not considered a financial asset. But gold can be treated as one if used as central banks’ reserve assets — the technical term is “monetary gold.” By the same token, “monetary Bitcoin” is possible. However, for now, cryptos are still neither a currency nor a financial asset.

Many people, however, are not deterred from acquiring and adding cryptos into their “financial” portfolios. And there are many reasons why people actually use cryptos. A 2020 survey conducted by the United Kingdom Financial Conduct Authority reveals that other than for speculation, 17 percent of respondents also purchase cryptos for ideological reasons, such as, “I don’t trust the financial system”.

In fact, one of the popular talking points used by crypto activists is that governments are frequently debasing money with bailouts and interventions that are only benefiting big financiers, not the common folks. Ergo, to give the monetary control back to the people, an alternative system must be created. It is also sold as a proposal to end the hegemony of the US dollar.

On larger scales, cryptos are also touted as tools to circumvent impenetrable barriers to access the global financial system. With cryptos, those in China, Russia or Iran who are subject to severe cross-border capital controls — from governments or sanctions — can now move their monies freely. For them, fluctuations in price are just premiums that must be paid. This is also a reason why these countries contribute to the largest cryptominers, aside from cheap electricity. On a side note, the same tools can be used by criminals, who are typically prevented from accessing financial resources.

This anarchic nature of cryptos presents a threat to central banks’ hegemony in the financial sector. That is also why central banks are racing to rein in crypto markets while at the same, time trying to offer a comparable alternative by creating central bank digital currencies (CBDCs).

Still, CBDCs might create another problem, especially the retail variants. The instrument will allow the public to access the issuing central bank’s balance sheet directly, meaning that people can practically deposit money in the central bank. It might unintentionally force the central bank and commercial banks to compete in deposit-taking.

Truth be told, this will be an unprecedented disintermediation problem as most central banks have neither the mandate nor the competence to engage in the retail loan business. In fact, in Indonesia, the central bank has a strict statutory ban on extending retail credit, even though the bank had previously engaged in retail loan disbursements through the Bank Indonesia Credit Liquidity (KLBI) program for decades, albeit still indirectly through commercial banks.

Despite all the challenges posed by the emergence of cryptos, one thing is clear: They are disrupting the status quo. The financial landscape will never be the same. The ultimate question will be how to balance the need to maintain stability and experience a creative-yet-risky endeavor to promote innovation.

 In a democratic society, the people should give clear guidance on how those objectives are prioritized through statutes. Yet current Indonesian statutes are not so clear-cut on that issue, leaving regulators taking seemingly contradictory approaches on cryptos. Thus, updating the relevant laws to give a clearer and more consistent regulatory paradigm might be a good start to harmonize the approaches.

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The writer works at Bank Indonesia. The views expressed are personal.