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EU shifts attitude to virtual currencies following ECB fear

18 October 2016

The mood music in Brussels has taken a turn for the worse on virtual currencies.

On 5 July 2016, the European Commission published a bold plan to bring virtual currency exchange platforms and custodian wallet providers under the 4th Anti-Money Laundering Directive. The reception in the virtual currency community was notably mixed. Some thought increased regulation would bring greater credibility to virtual currencies and would be the first step in them becoming an accepted part of the financial landscape. Others believed regulation would in time be proved to be unnecessary, unhelpful or unenforceable, and was therefore not worth engaging with. In any event, the general demeanour of the European Commission appeared to be one of genuine concern as to harnessing the potential of virtual currencies for good rather than evil, as opposed to providing blunt opposition.

However, last week the ECB issued its own opinion on the proposed directive and it contains a hammer blow to virtual currencies (although not one that will surprise aficionados of monetary economics):

“…the reliance of economic actors on virtual currency units, if substantially increased in the future, could in principle affect the central banks’ control over the supply of money…”

This insight comes along with the recommendation that “…Union legislative bodies should… take care not to appear to promote the use of privately established digital currencies.”

In other words, the ECB is being surprisingly frank about virtual currencies posing a threat to fiat currencies, and it does not want the European Commission pouring petrol on the fire.

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