- Last week, the International Monetary Fund published “Virtual Currencies and Beyond,” which said “New technologies—supported by advances in encryption and network computing—are driving transformational change in the global economy, including in how goods, services and assets are exchanged .
- VCs and their associated technologies (notably distributed ledgers based on blockchains) are rapidly evolving, and the future landscape is difficult to predict.
- VCs offer many potential benefits, including greater speed and efficiency
in making payments and transfers—particularly across borders––and ultimately promoting financial inclusion.
- The distributed ledger technology underlying some VC schemes … offers potential benefits that go far beyond VCs themselves.
- At the same time, VCs pose considerable risks as potential vehicles for money laundering, terrorist financing, tax evasion and fraud. While risks to the conduct of monetary policy seem less likely to arise at this stage given the very small scale of VCs, risks to financial stability may eventually emerge as the new technologies become more widely used." Full report here.
- Separately, on January 14, high profile Bitcoin developer Mike Hearn said, “Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralized form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people. Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.” Full text here.
- Regarding virtual currencies – they have the potential to 1) introduce healthy competition into the monetary system, 2) lower costs and drive operational improvements for financial transactions, 3) expand micro-finance opportunities, 4) serve as an alternative to unstable currencies and 5) support new classes of applications. At the same time, the use of encryption will continue to be debated by policy makers, business leaders and privacy advocates. My report "Bitcoin, Digital Currency and the Internet of Money" here.
- Regarding Bitcoin - It may simply represent another stage in the evolution of virtual currencies and virtual assets - that will reshape how global commerce is pursued.