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EU: Cryptocurrencies Are a Long Way From Being Able to Challenge Central Banks

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The European Parliament published an in-depth analysis of the challenges faced by central banks and cryptocurrencies on July 1st 2018. The report, requested by the European Parliament Committee on Economic and Monetary Affairs (ECON), summarized that cryptocurrencies “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.”

The report emphasized the use-cases of cryptocurrencies such as the ability to create safe, fast and transparent transactions worldwide. Since the crypto market is still relatively new, it faces the problem of being recognized as a legal payment method by various authorities. Even though news keeps emerging that central banks can be boosted by digital money, various studies have shown that ever since the financial crisis in 2008, the demand for reserve money (central bank’s money) has increased.

Policy makers and regulators should not ignore VCs, nor should they attempt to ban them. Both extreme approaches are incorrect.

Another point raised by the report stated that financial institutions usually disregard these currencies because they allow users to remain anonymous. This makes it easier for criminals to use it for money laundering and other activities. However, countries like South Korea have implemented Know Your Customer (KYC) policies to combat such illegal schemes. 

Recent hacking incidents of cryptocurrency exchanges such as Bithumb, Coinrail and Mt. Gox have also exacerbated the negative image of cryptocurrencies. The analysis explained that cryptocurrencies must not be generalized due to a few fraudulent episodes. However, taxes should be placed on crypto investments. Bitcoin, Ethereum and Ripple were also given the spotlight in the report, as they have the highest market capitalization. 

The document appears to have been finalized in the last week of May, since it shows the value of Bitcoin as $8,313. Currently, BTC is priced at $6,386, while Ethereum is priced at $456.

Image Credit: Deposit Photos

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