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IBS recently noted the reluctance of existing banks,
suppliers and regulators to engage with bitcoin and other virtual currencies
(VC), but at least it hasn’t suffered the same fate of the Liberty Dollar in
the US, which was stamped on by the FBI in 2007. Its computers were seized, its
currency, backed by $7 million in gold and silver, was confiscated and its
founder was eventually found guilty of ‘making, possessing and selling his own
Bitcoin is altogether harder to stamp out, as it is not
backed by anything solid, is not in any one jurisdiction and exists online
only. It may not therefore be as overt a threat as the Liberty Dollar (which
was set up by an entity once called the National Organization for the Repeal of
the Federal Reserve and the Internal Revenue Code) but it also reflects the
changing nature of technology.
The European Banking Authority (EBA) has now weighed in, concluding
that authorities should tell the industry not to trade in virtual currencies. It
had already warned consumers that virtual currencies are unregulated.
The EBA has managed to find 70 risks with the use of virtual
currencies. They range from ‘user loses VC units when exchange gets hacked’ to ‘should
VCs gain widespread acceptance, central bank as issuer of fiat currency can no
longer steer the economy, as the impact of its monetary measures become
difficult to predict’.
Bitcoin machines, Helsinki
It also adds that ‘while there are some potential benefits
of VCs, for example, reduced transaction costs, faster transaction speed and
financial inclusion, these benefits are less relevant in the European Union,
due to the existing and pending EU regulations and directives that are
explicitly aimed at faster transactions speeds and costs and at increasing
To summarise, its message is to stop using VCs until they
have all the same protections and regulations as the Euro, which isn’t that bad
anyway and which thanks to its enlightened regulators is addressing the
concerns of bitcoin users.
However, the very attraction of VCs is that they do not
behave like the Euro. The chances are that users are instinctively aware of the
‘risks’ of VCs when they use them but prefer the devil they don’t know to the
devil they do. It might just be that Europeans equate the Euro with recession,
unemployment and political emasculation. Talking about the benefits or SEPA or the
second Payment Services Directive misses the point.
The EBA also calls for the regulation of VCs in the long
term. Indeed, regulation has already started. Canada has added virtual currencies to its body of anti-money laundering regulation, adding on the first
of an endless number of costs to VC transactions.
The chances are that so long as they remain out of control
of governments in terms of their issuance, there will still be benefits of VCs
as stores of value, just as there is with gold. But the existing banking
industry will throw as many obstacles in the way as it can.