HSS – Virtual currencies pose a risk to financial stability according to a new study


The study for the European Parliament exposes the problems with unregulated virtual currencies and the potential threat it poses to the international financial system.

August 1, 2018

A new study conducted by Queen Mary University in London and The The Humboldt University of Berlin found that many virtual currencies issued privately pose a direct challenge to the monetary system and should be regulated in order to prevent a future financial crisis.

Since the launch of Bitcoin in 2009, virtual currencies have entered mainstream awareness. The evolution of money in the digital age and the underlying block chain technology are attracting increasing interest. Although virtual currencies were not, in the early years, considered a risk to the financial or real economy, or for monetary policy, despite a volatile market, they have recently increased in both number and value.

Watch and wait policy

To date, most regulators have adopted a "look and wait" approach to avoid stifling innovation. This latest study for the European Parliament exposes the problems with this approach and describes the threat that virtual currencies issued privately represent for the international financial system. The study also takes into consideration the potential impact of virtual currencies issued by central banks.

Dr Jason Grant Allen, co-author of the paper, said: "The value of the virtual currency market is now valued at hundreds of billions of dollars, which is surprising considering that all the significant growth in value has occurred in the last three If this rate of growth continues, central banks may face challenges in their monetary policies in the future. "

Potential future challenges

The authors warn that if the virtual currency market continues to grow, central banks like The European Central Bank The Bank can face challenges in its monetary policy and the monopoly of the role of note as a large category of money-like instruments would be beyond their control.

However, the study also found that virtual currencies issued privately do not pose any serious risk to the role of central bank money creation in the Eurosystem so far.

Professor Rosa Maria Lastra said: "We recommend that a harmonized approach to regulation be adopted at European level before a virtual currency-based crisis occurs, which will shape the market as it evolves and help to avoid interruption of the real economy. "

The key recommendations also include the prohibition of certain virtual currencies and other cryptographic assets outright.

More information

For information on the media, contact:

Paul Jordan
Public Relations Officer
Queen Mary University of London
email: [email protected]

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