The cryptocurrency market has become sufficiently large that trade could make an impact on the national accounts of countries where trade volumes are largest. Should cryptocurrencies, therefore, be included in official national accounts data?
This was the question posed by the UK's Office for National Statistics (ONS) on Thursday in a lengthy discussion paper focusing on the similarities between gold and crypto-assets regarding their impact on trade flows.
In the paper, the ONS discusses – without coming to any firm conclusions – whether cryptocurrencies such as bitcoin should be classified as valuables. These are items on the national accounts that can be used as a store of value and are tradeable, but they have no impact on the production of other goods and services.
“What do you do with an asset which does not have a liability and does not play a role in production? Answer – you pop it into valuables and hope no-one really notices,” said Richard Heys, deputy chief economist at the ONS.
But this is not a perfect solution, according to the paper, as trade in valuables such as non-monetary gold – held and traded by individuals and institutions over exchanges such as the London Metal Exchange – has reached such magnitude in recent years it can change whether a country is in surplus or deficit. Indeed, it frequently does in the UK.
“In short, the impact of valuables is no longer small and no longer stable. And it could potentially get much worse,” Heys added.
Crypto market growth
The ongoing debate at the ONS on whether or not to include trade in crypto assets and, if so, how to classify them, is similar to the discussion that led to non-monetary gold being classified as a valuable.
Those engaged in the debate already know the cryptocurrency market is large and volatile and that trade is concentrated in a handful of exchanges in a small number of countries.
“The one thing we don’t know is which countries will end up playing host to the largest exchanges and therefore which countries will find their trade balance affected, like the UK experiences with gold,” said Heys.
So, should cryptocurrencies and valuables such as non-monetary gold be banded under the valuables category, or should they be treated as distinct classes of financial assets that have less of a distorting impact on trade flows?
“This solution would allow macroeconomic aggregates relating to trade and financial measures to continue to be produced in ways which are meaningful for users,” Heys said.
But the ONS is still unsure and invites economic analysts and experts to contribute to the debate by getting in touch at ONS.ESCOE@ons.gov.uk.
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