European Banking Authority to set up virtual currency taskforce
by Kylene Casanova
The European Banking Authority (EBA) is to assemble a taskforce to determine whether virtual currencies should be regulated. The EU regulatory body in December issued a warning to consumers of the risks relating to virtual currencies. Several national supervisors followed suit and published statements on their own Websites and/or cross-referenced the EBA warning.
In its latest consumer trends report, the EBA wrote that:
- a virtual currency as a form of unregulated digital money that is not issued or guaranteed by a central bank and that can act as a means of payment.
- virtual currencies have come in many forms, beginning as currencies within online computer gaming environments and social networks, and developing into means of payment accepted offline or in ‘real life’
- it is now increasingly possible to use virtual currencies as a means to pay for goods and services with retailers, restaurants and entertainment venues. These transactions often do not incur any fees or charges, and do not involve a bank.
They also highlight that Bitcoin usage has spread rapidly with now more than 400k users. AND an increasing number of retailers, both online and in the real economy, have started to accept Bitcoins as a means of payment that does not incur any exchange rate fees and, which does not usually involve a bank or any charges that may be placed on a transaction.
Can and ought to be regulated?
EBA wrote, almost musingly: “The question yet to be addressed is whether virtual currencies can and ought to be regulated. To that end, the EBA will establish a cross-sectoral task force in H1 2014, with the aim of finding an answer to this question. The analysis would see the task force identifying not only the risks for consumers of using virtual currencies as a means of payment, but also other risks that may arise:
- for regulators in achieving their anti-money laundering objectives, given that the anonymous nature of virtual currencies is conducive to this type of activity;
- for investors from using virtual currencies for speculative purposes or from buying investment products that are based on virtual currencies (e.g. ETFs using Bitcoins as an underlying asset); and
- for societies more widely, as a result of virtual currencies being used for criminal activities, such as the anonymous purchase of illegal goods, including drugs and weapons.
The EBA's action follows the recent bankruptcy of the world's biggest bitcoin exchange MT Gox, and yesterday's announcement by Alberta-based 'bitcoin bank' that it was shutting up shop in the wake of a cyber theft that saw criminals make off with $600,000 worth of bitcoins. (There are also many other digital currencies already and more in development.)
Treat like gold and overall impact
The Japanese government is also developing regulations to control digital currencies. They may be looking at stopping banks and securities firms handling bitcoin as part of their main business, suggesting the crypto-currency will be treated more as a commodity, like gold.
Wolfgang Münchau wrote in the Financial Times earlier this month that ‘our flawed financial system is reflected in Bitcoin’ and how the whole financial system is at risk. The digital currencies - Bitcoin or the successors - may be the decentralised system that could survive the next financial crisis.
CTMfile take: The central bankers will always be very concerned at ‘any means of payment that does not incur any exchange rate fees and which does not usually involve a bank or any charges that may be placed on a transaction.’ Will virtual currencies have an impact on corporate treasury? Yes, inevitably; it is just not clear what.
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