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Central Bank urges Bitcoin to learn from the mistakes of the last financial crisis

The Director of Markets Supervision, Gareth Murphy, urged the virtual currency industry to work with financial institutions and avoid the “culture of indifference” which led to the last financial crisis.

Image: AP Photo/Frank Jordans

A SENIOR OFFICIAL from the Central Bank has urged both financial institutions and those involved in the digital currency industry to work together and avoid the “culture of indifference” that led to the previous financial crisis.

Speaking at BitFin 2014, a conference discussing the role of Bitcoin and other virtual currencies, the Central Bank’s Director of Markets Supervision, Gareth Murphy, said it was necessary for this and avoid “playing cat and mouse.”

Unlike the previous financial crisis when a culture of indifference by parts of the financial services industry towards regulation prevailed, I would urge this industry to work activity to address the concerns of financial authorities rather than ‘playing cat and mouse’ and eventually, and inevitably, being drawn into the regulatory net.

Murphy mentioned that the majority of regulation reform has been a response to the financial crisis of 2008, and that “technology-driven innovations in payments, savings and distributions”  will be some of the issues financial authorities will face in the coming years.

Murphy highlighted seven issues surrounding virtual currencies that would cause concern for financial authorities. These include:

  • Economic Statistics: Measuring a virtual currency alongside traditional measurements of economic activity.
  • Monetary and Exchange Rate Policy: The introduction of a virtual currency would create issues for financial authorities, especially when it comes to measuring monetary aggregates or setting the price of credit.
  • Tax Leakage: How to ensure that transactions made through digital currencies go into the economy.
  • Payment system: Ensuring that the infrastructure used to process virtual currencies is reliable and secure.
  • Consumer protection: Ensuring that consumers have confidence in these virtual currencies and that it’s free from any surprises like a sudden drop in value.
  • Anti-money laundering: Ensuring that virtual currencies don’t provide an alternative channel for the proceeds of crime from being used to purchase goods and services in the real economy.
  • Their impact on regulated financial services: The introduction of virtual currencies will have an impact on services like banks, and insurance companies as they adapt to the new service.

Alongside these concerns, the measurement of virtual currency activity will require “significant regulatory intervention,”such as deciding who would be legally obliged to report to financial authorities. As a result, they would most likely require their own unique rules to help regulate the currency.

Murphy added that in the case of a virtual currency theft, it would down to the Gardaí and the relevant police authorities to investigate and pursue it. After the issue of theft has been dealt with, regulators may add further sanctions if they wish.

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About the author:

Quinton O'Reilly

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