ECB calls for clampdown on virtual currencies

Virtual currencies © Kārlis Dambrāns
© Kārlis Dambrāns

Yves Mersch, a member of the executive board at the European Central Bank, has called for a global clampdown on virtual currencies, such as bitcoin.

In a speech yesterday (8 February) at the Official Monetary and Financial Institutions Forum in London, UK, he criticised bitcoin for being inferior to other available payment options, and called virtual currencies (also known as cryptocurrencies) slow and expensive.

Bloomberg reports that in the speech, Mersch warned that officials need to begin the process of regulating cryptocurrencies, but that to do so, they will need to begin gathering more information at once. “For me, one obligation would already be to force the unregulated platforms to report transactions in a harmonized way to repositories so that we would have access to information — also in order to create a better response.”

Why do cryptocurrencies need to be regulated?

There are an estimated 1,500 types of cryptocurrency already available online, and officials are concerned that this could make hiding financial activity and transactions by terror groups and online criminals much easier.

Until recently, policymakers have not seen cryptocurrencies as a serious economic force in need of regulation. However, towards the end of 2017, a sudden influx of investment in bitcoin created a bubble worth some $684bn (~€557bn) over three months, leading officials to recognise the need for tighter regulations.

Mersch added that, while the economic impact of cryptocurrencies is still speculative, they are already having an impact on people: “The question is not so much that these virtual currencies are already at a level that would cause huge disruption in the real economy, but we are currently more concerned about the social and psychological effect they seem to have.”

Are virtual currencies the future of the economy?

The Guardian reports that Agustín Carstens, head of the Bank for International Settlements, condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”.

However, other economists, including Mersch, have recognised that there is the potential for much innovation in virtual currencies. Certainly, the blockchain technology that powers bitcoin is being investigated for its potential to make transactions more efficient, particularly across borders.

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