"Virtual and digital currencies can challenge the sovereignty of states,” says Gareth Murphy, senior Central Bank of Ireland official. At a recent digital money conference in Dublin, he mentioned that rivals are interfering with a bank's ability to sway the price of credit for the entire economy. Murphy warned that there might be considerable threat to the finances of a country if increasingly more transactions for services and goods fade away from the tax system due to the use of crypto currencies such as Bitcoin. He added:
“Central banks, [out] of necessity, have monopolized the exercise of these functions. Virtual currencies pose new challenges to central banks’ control over these important functions.”
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Gaining ground in Ireland
Losing confidence in currencies may lead to uncertainty, which can trigger significant drops in economic activity. The Central Bank has constantly emphasized that it doesn't recognize digital currencies such as Bitcoin in Ireland. Nonetheless, those who choose to use Bitcoin anyway won't have consumer protection.
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Because digital currencies pervade economic activity, major financial institutions and banks will most likely feel the effects. Other major financial institutions don't see Bitcoin as a threat to their operations. However, in Murphy's view, these institutions would be foolish to have this kind of attitude towards the technology, mentioning:
“This is likely to have a profound operational impact on these firms and their regulatory risk profile.”
Monetary and economic changes
In today's hybrid economy, central banks will have to face a lot of economic challenges. Digital currencies defy the way these institutions calibrate exchange rates, monetary policy and set price of credit. Supporting Bitcoin and encouraging its growth would have to be attentively monitored. ...
Virtual currencies - a bank's worst enemy
Most economies function with many different currencies and the USD is the most frequently used on a global scale. Bitcoin undermines a central bank's ability on matters such as economic analysis, data collection, supervision, policy formation, enforcement and resolution, so these sort of implications can't be overlooked.
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Virtual currencies will soon become a bank's worst enemy, and that's because they're offering lower fees, commissions, greater convenience etc. Bitcoin might gain control over the most important functions of exchange rate and monetary policy. In spite of the currency's relative instability, more people are turning their attention to Bitcoin, and the more publicity it receives the higher chances it has to become ubiquitous in our everyday lives.
cointelegraph.com
