Virtual currencies and central banks monetary policy: challenges ahead
Speculation on Bitcoin and other virtual currencies appears to have subsided in recent months, yet the evolution of money in the digital age and the underlying block-chain technology are attracting growing interest. Not a week passes without financial institutions (including central banks) making statements or providing analysis on how to deal with this matter and the associated risks. Some believe that virtual currencies are the currencies of the future and are deemed to be economically significant. Others claim that virtual currencies are not money, nor will they be for the foreseeable future. As well summarised in a recent ECB speech 1, virtual currencies have key shortcomings compared to traditional money: as a medium of exchange they are far inferior to existing payment options; they lack of widespread recognition as virtual currencies are not legal tender and are not backed by a central bank; and they cannot work as a safe and effective store of value due to their intrinsic wild volatility.
Within the project CASE experts studied the potential impact of virtual currencies on the financial system and their implications for central banks’ monetary policy. Moreover, it was taken an attempt to find out whether virtual currencies potentially disrupt the monopoly issuance of money by central banks?