Virtual currencies and their potential impact on financial markets and monetary policy - CASE new report
Less than a decade has passed since the development of Bitcoin, the first private decentralised digital currency with a global reach. Despite many sceptical opinions, this experiment has survived, enjoys broad popularity, and has found many followers. Today Bitcoin is not alone; there are more than 1,500 other virtual currencies (VCs), but only a few record meaningful market turnover and capitalisation. Bitcoin remains the leader among them.
Initially, Bitcoin and other VCs drew little attention from economists or monetary and regulatory authorities. VCs were considered a niche phenomenon—a sort of technological folklore—that could disappear any day. They were largely analysed and propagated by IT specialists.
However, more recently, the situation has changed radically. Because Bitcoin did not disappear and, on the contrary, has continued its expansion and found followers worldwide, it has become a popular subject of discussion among economists, financial market specialists, and even politicians. Public figures are now expected to offer opinions on the topic. This increasing interest in VCs was partially underpinned by the rapid build-up of the Bitcoin financial bubble in 2017 and its subsequent burst in early 2018.
The purpose of this paper is an analysis of the phenomenon of VCs (and how it is seen in economic literature and public debate) and their potential impact on both financial markets and monetary policy, as well as on the supposed central bank monopoly on issuing money.
This policy contribution was prepared for the Committee on Economic and Monetary Affairs of the European Parliament (ECON) as an input for the Monetary Dialogue of 9 July 2018 between ECON and the President of the ECB (http://www.europarl.europa.eu/committees/en/econ/monetary-dialogue.html). Copyright remains with the European Parliament at all times.
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