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Crypto-currencies are worrying the bankers and the regulators

Crypto virtual currencies such as Bitcoin are the greatest disruptive force in payment systems today. They are here. They won’t disappear. The question is what to do about them. 

Bankers, regulators, corporate treasurers and payment system providers are all struggling with the questions and issues raised. Probably the biggest issue is that virtual currencies are decentralised, there is no need for a central clearing system, which really is a paradigm shift.

SWIFT’s CEO’s ruminations

At SIBOS this week, SWIFT CEO Gottfried Leibbrandt said, “I think [Bitcoin is] a potentially disruptive technology for everything that is centralized. It is the ultimate way to run things in a distributed way.” He expects (hopes?) that virtual currencies such as Bitcoin won’t be disruptive in the “next 10-20 years”. Nevertheless, he is hedging his bets and said that, “We’re very actively looking at it and we’ll see how we can use it in some of the applications that we have that are more peer-to-peer.”

Global regulation needed

There is no general view. Some country’s regulators are embracing the opportunity for new technology and innovation, such as virtual currencies, while other countries are focused on capital controls, that are doing everything they can to stop virtual currencies.

But regulation will have to come. The USA is probably leading the way in working out how to regulate the new virtual currencies, and, by definition, effectively legitimising such currencies. The European Banking Authority have set up a virtual currency taskforce

The race is on, to develop an appropriate and effective regulatory framework. The problem is that virtual currencies have no boundaries. They are not just located in Europe or USA, they are, by their very nature, global. This time the regulators really will have to co-operate globally.

Bank concerns

Banks are also studying and analysing the impact of virtual currencies. One major concern (and for the regulators) is the potential use of virtual currencies in illicit activities. 

Payment system/service providers

All the major payment system/service providers are studying how the virtual currencies will affect them, and how they can turn them into an opportunity, e.g. PayPal.

Corporate treasury postioning/strategy

The world’s global financial message provider, SWIFT, has concluded that virtual currencies will be a major disruptive force in payment systems. Although, the regulators are struggling to develop a regulatory framework, virtual currencies are coming and will be used to make payments to companies.

Although it is not urgent, corporate treasury departments need to think through how they will incorporate Bitcoin and other virtual currencies into their payment processes.

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