Main page News, Cryptocurrency, European Union, European Central Bank, Banking
Hot topic
July 2, 2018

EU has released a crypto skeptical report stating that central banks of the block should not fear digital currencies replacing fiat money any time soon. But members of the union are largely divided in their opinion of cryptocurrencies. Some see them as a threat, while others are encouraging their development in every possible way.

The European Parliament’s Committee on Economic and Monetary Affairs (ECON) published its report “Virtual currencies and central banks monetary policy: challenges ahead” evaluating possible pros and cons of digital assets. The document reveals that some of the shortcomings of digital currencies will prevent them from challenging the fiat currencies in the near future. Despite the fact that many characteristics are shared, cryptocurrencies do not qualify as money in the traditional meaning of the term.

The report also illuminates the negative sides of the сryptocurrencies. Market volatility can lead to unforeseen risks, the document says:

“VCs can be also subject to significant and unexpected exchange rate fluctuations. Although this is not a unique characteristic of VCs and there are many historical episodes of the extreme volatility of the exchange rates of sovereign currencies, the intensity (probability and magnitude) of this risk seems to be more profound in the case of VCs, especially when compared to major sovereign currencies.”

The document also warns that developers of digital assets need to be more honest. The ICO market needs to be carefully regulated, and white paper should be as transparent as possible.

However, authors note that Central Bank Digital Currencies (CBDC) can make the global financial system more stable. The release of the CBDC requires the improvement of certain mechanisms for the activities of the Central Banks. This will allow financial institutions to review the main principles of their activities.

In addition, the advantages of cryptocurrency for developing countries are discussed separately. As a positive example, the document cites the use of the digital assets in Venezuela:

“If a given country suffers from macroeconomic or political instability and uncertainty (or both), there are strong incentives to run away from its sovereign currency—this is the phenomenon known as currency substitution. Again, the question arises as to whether VCs can benefit from such situations—that is, will the person fleeing the troubled sovereign currency be ready to choose a VC instead? The increasing interest in mining bitcoin in Venezuela, a country that is suffering from hyperinflation suggests a positive answer to this question.”

Earlier, cryptocurrency exchange Binance has launched a crypto exchange in Uganda. Changpeng Zhao, the CEO and founder of Binance, also believes that cryptocurrencies can become more widespread in the region than the traditional banking system and virtual assets can be used in all parts of the world.

By Ekaterina Ulyanova

Read also:
Strawberry Cake Media Corp. © 2024 Cookie Policy Editorial team Archive

ihodl.com is an illustrated edition about cryptocurrencies and financial markets.
Every day we publish the best materials for everyone interested in economy.