An EU report published today backs cryptocurrencies, which it terms virtual currencies or “VC’s”, and says that economists who dismiss them are “mistaken”. The report concludes that regulators should not ban virtual currencies or ignore them but should regulate them proportionally.
The report (pdf), authored by Marek Dabrowski and Lukasz Janikowski of the EU’s Policy Department for Economic, Scientific and Quality of Life Policies, states: “The economists who attempt to dismiss the justifications for and importance of VCs, considering them as the inventions of ‘quacks and cranks’ (Skidelsky, 2018), a new incarnation of monetary utopia or mania (Shiller, 2018), fraud, or simply as a convenient instrument for money laundering, are mistaken. VCs respond to real market demand and, most likely, will remain with us for a while.”
Titled “Virtual currencies and central banks monetary policy: challenges ahead”, the report was written at the request of the EU’s ECON committee. It argues that virtual currencies should be treated as any other financial instrument, “proportionally to their market importance, complexity, and associated risks”. In respect of regulation, it recommends a global framework as cryptocurrencies aren’t restricted by borders.
However, the authors sound a note of caution, arguing that virtual currencies are unlikely to succeed against sovereign currencies. They recognize that enthusiasts of private money want to see this happen, but dismiss the possibility on the basis of a lack of adoption:
“The answer seems most likely ‘no’, despite the relative market success of Bitcoin and the chances for similar successes with its followers. After almost a decade since its creation, and notwithstanding its acceptance by some digital platforms and strong market value, its role remains marginal.”
On the other hand, the authors recognize the key role that cryptocurrencies may have in countries that do not have a reliable sovereign currency. They say countries such as Venezuela, which has spiraling inflation, could benefit from an alternative means of payment. It blames political and economic uncertainty for causing unstable financial systems.
The report concludes that more transparent and safe cryptocurrencies cannot be ruled out and that these may increase the prospect of one that can compete with sovereign currencies, including USD and EUR.