A study for the European Parliament: cryptocurrencies cannot be ignored and banned

New research analysis of the cryptocurrency to the Committee on Economics and monetary policy of the EU Parliament warns lawmakers from neglect and attempts to ban virtual currency.

The report, submitted at the request of the Committee on Economics and monetary policy of the European Parliament, called «Virtual currency and the monetary policy of Central banks: the challenges ahead».

The authors of the report Marek Dabrowski (Marek Dabrowski) and Janikowski Lukasz (Lukasz Janikowski) from the Center for social and economic research consider cryptocurrency as a «modern form of private money.»

Referring to the disadvantages of private money in the past, the researchers acknowledge that technological properties of virtual currencies such as bitcoin makes them «relatively safe, transparent and fast». However, their «anonymous» and «transboundary» nature of the admittedly pose a challenge for financial regulators:

«Unlike their paper predecessors of the eighteenth and nineteenth centuries, a virtual currency used around the world, regardless of national borders.»

Cryptocurrencies are not going anywhere

It is expected that virtual currency will not disappear in the near future due to their decentralized and apolitical nature. Moreover, the study authors urge economists not to underestimate the revolutionary potential of this new technology.

«Economists who try to ignore the importance of virtual currencies, considering it as the invention of «shamans and freaks», the new incarnation of the monetary utopia or mania, fraud, or simply as a convenient tool for money laundering, mistaken», — the report says.

Virtual currencies react to real market demand and is likely to remain with us for some time.

«Legislators and regulators should not ignore the cryptocurrency and try to ban them», — the report says.

Researchers believe that both of these extreme approach «wrong» and that virtual currencies should be regarded regulatory bodies, like any other financial instrument.

The authors recognize that given the «global cross-border nature» of cryptocurrencies, any attempt to ban them will lead to failure. Instead, they recommend taxation of virtual currencies, similar to other financial assets, and «harmonization» of regulation in different jurisdictions, which was discussed
at the G20 summit this year.

In may, the European Union adopted
the new Directive on combating money laundering, aimed in particular at the end of November, with the aim to monitor the work of the cryptocurrency companies and to identify anonymous users.

Can bitcoin compete with Fiat currencies?

Earlier this year it was reported that one of the founders of the Bitcoin Foundation Jon Matonis (Jon Matonis) said that bitcoin «may burst real bubble» created by Central banks. The world gold Council in February of this year, also said that bitcoin has the ability «to undermine the work of Central banks».

However, the researchers report for the European Parliament rejected such a possibility. The authors of the report suggest that such a probability is very low and most likely not bitcoin can become a real threat to Central banks.

Considering the current disproportionate differences in capitalization and use between cryptocurrency and national currencies, the authors note that «monetary dominance» of the Central banks and other major currencies will continue in the foreseeable future.

However, the document really is the virtual currency in a positive light when talking about small jurisdictions that are suffering from political and economic instability, such as Venezuela.

«Virtual currencies can offer the possibility of the replacement of the national currency, as we have recently seen in Venezuela,» added the report. «It cannot be excluded that future progress in the field of information technology can bring a more transparent, safe and simple to use virtual currency. This can increase to cryptocurrencies chances for effective competition with the major national currencies».

Referring to the example of Venezuela, the authors of the study, apparently had a view of the issue
government national cryptocurrency Petro provided by oil. Behind her, several more Latin American countries declared similar intentions, but none of them have decided to take this bold step.

Not long ago, the representative of the Central Bank of Italy said the Central banks, at least in the short term, will not be able to cope with the launch of its own digital currency. The same position is shared by most Central banks of developed countries. Although some financial regulators, for example, in Norway and England, are studying the possibility of issuing their own cryptocurrencies, most countries with advanced economies have so far refused such an opportunity. For example, recently, the Central Bank of Hong Kong refused to issue its own cryptocurrency.

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