(CoinTelegraph) “Virtual and digital currencies can challenge the sovereignty of states,” says Gareth Murphy, senior
Central Bank of Ireland
official. At a recent digital money conference in Dublin, he mentioned
that rivals are interfering with a bank’s ability to sway the price of
credit for the entire economy. Murphy warned that there might be
considerable threat to the finances of a country if increasingly more
transactions for services and goods fade away from the tax system due to
the use of crypto currencies such as
Bitcoin. He added:
“Central banks, [out] of necessity, have monopolized the exercise
of these functions. Virtual currencies pose new challenges to central
banks’ control over these important functions.”
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Bitcoin Gaining ground in Ireland
Losing confidence in currencies may lead to uncertainty, which can
trigger significant drops in economic activity. The Central Bank has
constantly emphasized that it doesn’t recognize digital currencies such
as Bitcoin in Ireland. Nonetheless, those who choose to use
Bitcoin anyway won’t have consumer protection.
As the Director of Markets Supervision at the Central Bank, Mr.
Murphy is well aware that virtual currencies could offer a great option
for people looking to buy and sell different services and goods. He
added that in these circumstances, the anti-money laundering rules will
be thoroughly tested. Failure of settlement infrastructure and
payments, or any sort of “financial plumbing,” could have a great impact
on the country’s economic activity and consumer confidence. Murphy
said:
“In effect, economic activity is the aggregate of domestic
transactions in the ‘euro-denominated economy’ and the ‘virtual currency
economy.’”
Because digital currencies pervade economic activity, major financial
institutions and banks will most likely feel the effects. Other major
financial institutions don’t see Bitcoin as a threat to their
operations. However, in Murphy’s view, these institutions would be
foolish to have this kind of attitude towards the technology,
mentioning:
“This is likely to have a profound operational impact on these firms and their regulatory risk profile.”
Monetary and economic changes
In today’s hybrid economy, central banks will have to face a lot of
economic challenges. Digital currencies defy the way these institutions
calibrate exchange rates, monetary policy and set price of credit.
Supporting Bitcoin and encouraging its growth would have to be
attentively monitored. Gareth Murphy added:
“The existence of a ‘euro-denominated economy’ and a ‘virtual
currency economy’ raises the prospect of an internal balance of payments
between two sub-economies where suppliers may prefer one currency over
another as a means of payment (for different goods and services).”
Virtual currencies – a bank’s worst enemy
Most economies function with many different currencies and the USD is
the most frequently used on a global scale. Bitcoin undermines a
central bank’s ability on matters such as economic analysis, data
collection, supervision, policy formation, enforcement and resolution,
so these sort of implications can’t be overlooked.
As far as regulation is concerned, Murphy suggests that Bitcoin
shouldn’t take things for granted and assume its actions will keep
falling under US and Switzerland regulations. He did mention that
Bitcoin should be used to support indefinite innovations that may come
from a wiser use of the technology:
“We should not presume that current regulations are
future-proof. It is possible that further innovations will mean that
these regulations may no longer apply. This suggests that new
regulations may ultimately be needed which are based on new legal
concepts with a clear scope which must stand the test of time.”
Virtual currencies will soon become a bank’s worst enemy, and that’s
because they’re offering lower fees, commissions, greater convenience
etc. Bitcoin might gain control over the most important functions of
exchange rate and monetary policy. In spite of the currency’s relative
instability, more people are turning their attention to Bitcoin, and the
more publicity it receives the higher chances it has to become
ubiquitous in our everyday lives.
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