The Role of Central Banks in Cryptocurrencies

Cryptocurrencies, especially Bitcoin, have lately been one of the most discussed subjects in the financial markets. The popularity from cryptocurrencies came largely because their allowance for entirely anonymous transactions. Consequently, people could use them for illegal transactions, like the buying and selling of drugs or computer viruses. Therefore, governments are worried about cryptocurrencies and their role in society. Actions from the central banks are, consequently, becoming more crucial and in this article, I am going to analyze how major central banks are reacting on the digital currencies. Central banks are facing two different type of problems: what to do if security problems increase simultaneously with the popularity of private cryptocurrencies and if it is necessary to issue an official version of cryptocurrencies. Around the world the view/ response of central banks differ.

As the Asian governments are very concerned about cryptocurrencies, especially after a $500 million exchange hack in Japan, we see a very active policy against cryptocurrencies.

Despite the fact that Chinese authorities are cracking down on Bitcoin mining and cryptocurrency trading, officials believe that is time to introduce digital currencies. The Central Bank of China will have full control over these currencies, as they want to promote payment efficiency, while strictly controlling these type of currencies.

In South Korea, the circulation of

Bitcoin is so high, that the government already started to regulate them. Initially, they were thinking to ban bitcoin entirely, but then they decided to include rules that removes the anonymity of the cryptocurrencies in an attempt to keep them more above board by forcing everyone to put their real name to their bitcoin holdings and transactions,. In fact, one of the main reasons for Bitcoin’s rapid decline was the first news of South Korea’s aggressive regulation.

On the other hand, in the Western world, the United states of America and the Euro Area have a similar opinion about

cryptocurrencies. According to American institutions the principal challenge is the possibility for anonymous transactions that could result in money laundering and terrorism financing. The Euro Countries are worried about the speculative part. The vice president of the Euro Area, Vitor Constâncio, said that the cryptocurrencies are not a real currency, but a tulip. He was referring to the 17th-century bubble in the Netherlands. Euro area authorities say that the unstable value is a significant problem, and like the United States of America, claim that it is way a for tax evasion and crime. However, the European Central Bank president, Mario Draghi, has already said that the influence of digital currencies is limited and does not represent a threat to central banks ́ monopoly on money To conclude, I believe that the depth of any regulation depends on how many people are involved with cryptocurrencies, how much they are being used for illicit activities, and whether they begin to pose more danger to civilians. If governments see an increase in these areas, they will be expected to step in and ensure

safety.. Otherwise, as an official of the German Central Bank said, national rules on Bitcoin may contain a global phenomenon. “Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation, because the regulatory power of nation states is obviously limited.”.

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