The Policy Department for Economic, Scientific and Quality of Life Policies has published a report “Virtual currencies and central banks monetary policy: challenges ahead” at the request of the European Parliament Committee on Economic and Monetary Affairs. In it, the authors elaborate on VCs nature and recommend not to ignore VCs or attempt to ban them. “Both are extreme and incorrect approaches,” the authors said.
The report is rather explorative and begins by stating that “VCs are a contemporary form of private money” which are also “relatively safe, transparent, and fast.” It is then added that, unlike their paper predecessors, VCs disregard national borders and are cheaper to transfer even though they are risky and subject to fraud.
The authors then explain that VCs in their current form “are far from being able to challenge the dominant position of sovereign currencies and the monetary policies of central banks, especially in major currency areas. However, in extreme cases, such as during periods of hyperinflation, financial crisis, political turmoil, or war, they can become a means of currency substitution in individual economies.” Indeed, such examples are already visible in countries like Venezuela and Uganda.
And yet the authors after providing a general overview of VCs history, definition, technological structure, usage, its advantages and disadvantages, note that VCs are here to stay. Moreover, they bluntly discard the cryptocurrency critique that businessmen like Warren Buffet and Sabeer Bhatia are fond of.
“The economists who attempt to dismiss the justifications for and importance of VCs, considering them as the inventions of ‘quacks and cranks’, a new incarnation of monetary utopia or mania, fraud, or simply as a convenient instrument for money laundering, are mistaken,” the report reads.
Against this background, the authors acknowledge that those who assume that the strictest regulations and bans can entirely eliminate VCs are wrong, as it is impossible. It is not worth even trying. The authors recommend to introduce taxation on VCs similar to other financial assets and “harmonize” regulations across jurisdictions instead.
The EU, which consists of 28 European states, has been recently extremely preoccupied with cryptocurrency and blockchain. Last week it has adopted a new anti-money laundering directive which targets the cryptocurrency. Concurrently, Europol, the European version of Interpol, is exploring ways of tackling “the abuse of virtual currencies for illegal activities.”
On a more positive note, the EU is embracing the blockchain technology and has recently held an Ask Me Anything session on the blockchain usage.