EU Report: Central Banks Are Likely Safe from Cryptocurrencies

Report entitled “Virtual currencies and central banks monetary policy: challenges ahead.” Authored by Marek Dabrowski and Lukasz Janikowski, the report comes at the request of the European Parliament’s Committee on Economic and Monetary Affairs, and its findings are a focal point for the committee’s July 2018 Monetary Dialogues.

In evaluating cryptocurrencies as a novel, potentially disruptive technology, the report ultimately concludes that “[policy] makers and regulators should not ignore VCs, nor should they attempt to ban them … VCs should be treated by regulators as any other financial instrument, proportionally to their market importance, complexity, and associated risks.”

Even so, the report is measured in its findings, and it does expose the limitations cryptocurrencies and their contingent blockchain technology currently pose. Directing its analysis to the question of crypto’s chances to supplant current central banking practices, the report succinctly concludes “the answer seems most likely ‘no.’”

The report argues that cryptocurrency is fundamentally private money, and past experiments with private money – such as during the free banking era in the US in the 19th century – failed for a number of reasons. It echoes arguments made recently by Nobel Prize-winning economist Robert J. Shiller of Yale University.

Read More: Bitcoin Bubble May Last a While, says Nobel Winning Economist Robert Shiller

One is that currencies lacked network externality – that is, recognition by external economic agents. This is necessary to create a financial market.  Private currencies have always struggled to do this while in competition with other private currencies, which was invariably the situation where private currencies are permitted and in vogue.

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