Singapore's central bank has been studying the potential risks posed by cryptocurrencies, but there is as yet no strong case to ban trading of the digital coins, Deputy Prime Minister Tharman Shanmugaratnam said.
"Cryptocurrencies are an experiment. The number and different forms of cryptocurrencies are growing internationally. It is too early to say if they will succeed," he added.
"If some do succeed, their full implications will also not be known for some time," he said in a written answer to questions from MPs on banning the trading of bitcoin or cryptocurrency.
"The Monetary Authority of Singapore has been closely studying these developments and the potential risks they pose. As of now, there is no strong case to ban cryptocurrency trading here."
Separately, the head of the Bank for International Settlements (BIS), the central bank for central banks, yesterday lambasted bitcoin as a speculative bubble and said the authorities need to be ready to protect public trust in the financial system.
While acknowledging the intention of bitcoin's developers to create an alternative payment system with no government involvement, "it has become a combination of a bubble, a Ponzi scheme and an environmental disaster", said BIS general manager Agustin Carstens.
Delivering a lecture co-hosted by Germany's central bank, he said the authorities need to be vigilant as cryptocurrencies could undermine public trust in the financial system.
While cryptocurrencies, led by bitcoin, soared in value last year, the authorities in most countries stood on the sidelines, while in some countries they embraced the technology that promises to cut the costs of financial transactions.
But as the value of bitcoin - the best-known virtual currency - has tumbled from its December high of nearly US$20,000 to less than half that value with wild daily swings, regulators have taken a more critical outlook.
Mr Carstens said the volatility of cryptocurrencies undermined their utility for transactions and a store in value, thus apparently leaving their main use as a means for criminals to move money.
"If the only 'business case' is use for illicit or illegal transactions, central banks cannot allow such tokens to rely on much of the same institutional infrastructure that serves the overall financial system and freeload on the trust that it provides."
He called for particular vigilance in allowing cryptocurrencies to "piggyback" on the financial system with links to regular bank accounts.
A number of leading United States and British banks have recently announced bans on purchasing bitcoin and other cryptocurrencies with credit cards.
Bitcoin trading exchanges, which function like brokerages and hold their client balances, have proved targets for hackers, with Japanese exchange Coincheck hit by a US$530 million (S$701 million) heist last month.
Mr Carstens, formerly the head of Mexico's central bank, said cryptocurrencies may not yet pose a systemic risk.
"But if the authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability," he said.
Cryptocurrencies have also come under criticism for using vast amounts of electricity.
REUTERS, AGENCE FRANCE-PRESSE
