Despite flagging some concerns, the European Central Bank says that it does not think that the rise of virtual currencies currently provides a material risk to the smooth operation of payment systems.
In a follow up to a 2012 analysis, the ECB reiterates its stance that virtual currency, such as bitcoin, is a "digital representation of value," not money as defined in economic literature or in a legal sense.
The central bank lays out a list of drawbacks: lack of transparency, clarity and continuity; high dependency on IT and on networks; anonymity of the actors involved; and high volatility.
However, it concludes that, despite the hype, virtual currencies pose no material risk for any of its tasks, including promoting the smooth operation of payment systems. This is largely because bitcoin and its 500-odd imitators are still barely used. Bitcoin is tapped for around 69,000 transactions per day worldwide, compared with a total of 274 million non-cash retail payment transactions per day for the EU alone.
In the future, the ECB says that this could change, highlighting several benefits of virtual schemes, including costs, global reach, anonymity of the payer and speed of settlement. "A new or improved VCS, if it overcame the current barriers to widespread use, might be more successful than the existing ones, specifically for payments within “virtual communities”/closed-loop environments (e.g. internet platforms) and for cross-border payments."
Meanwhile, a major incident involving virtual currencies, and a subsequent loss of trust in them could undermine users’ confidence in electronic payment instruments and electronic money more widely. Therefore, says the bank, it will "continue to monitor payments-related developments in virtual currency schemes".
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