John Enoch, UK
Part five of a six-part blog series exploring the history, potential and implications of virtual currencies as they become more widely accepted.
Which way is the wind blowing?
My crystal ball is no better than the next man’s, but I would draw your attention to a few recent developments which may well be a foretaste of a growing positive attitude in some quarters towards virtual currency.
The use of Bitcoin is not legal in Russia. However, on 3 July 2014, Georgy Luntovsky, the Bank of Russia’s Deputy Chairman, said: ‘One can’t ignore this instrument, maybe this is the future… Maybe at some time we’ll take a decision about the legislative regulation of this question’. That is probably kremlin-speak for saying that we want to fly a kite to see whether opponents of Bitcoin shoot down the idea of legalisation — if not, it may happen.
Perhaps even more interesting is the attitude of the Swiss authorities, whom one might expect to be ultra-conservative. However, an influential government report has commented that no new regulation is necessary to deal with virtual currency, and that it could one day be awarded the legal status of money — ‘the only thing Bitcoin currently lacks to be money is low volatility.’ In other words, if the Bitcoin exchange rate is stable, Switzerland would consider classifying Bitcoin as money, alongside the Swiss franc. While I would not hold my breath, it is an encouraging sign.
Various other governments, including the UK, are beginning to realise that they do not want to drive what may be a lucrative new financial services market to a different jurisdiction, losing out on the kudos and financial rewards of being a recognised centre. On 6 August 2014, Britain’s Chancellor, George Osborne, announced a Treasury review that will assess how the UK could become a leading global centre for Bitcoin and other virtual currencies.
Of course, it is not all plain sailing. The European Banking Authority view, expressed on 3 July 2014, is that the advantages of virtual currencies are outweighed by ‘over 70 identified risks’ and that there is an immediate need to discourage traditional financial institutions from having anything to do with virtual currency.
One can set against this, though, a comment from Mark Littlewood, Director General of the Institute of Economic Affairs (IEA), a think-tank generally thought of as “free market right wing” which came to prominence when Margaret Thatcher was Prime Minister. He said on 17 June 2014:
‘If government were to embrace private monies rather than suppress them, there would be profound implications for individual freedom. Bitcoin has proved widely successful as an alternative form of exchange and as a way of restoring financial freedom. It is just the beginning, however. Fierce demand for private money will drive innovation, creating a tidal wave of new and superior forms of exchange.’
The IEA would abolish the concept of legal tender and privatise the money supply altogether — wouldn’t that be fun? (That was sort of the situation in Scotland in the 17th and 18th centuries, when private banks could issue currencies. It worked fine for a while, until, according to some, the English sabotaged the system, but that’s another story.)
In next week’s post, I will look at where we go from here.
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