London, UK, Binary News Network, Cryptocurrencies and blockchain technology are currently in vogue. There is no end to the stream of new projects and ICOs, which often seem like a modern-day gold rush: anything and everything can be converted into tokenized digital assets and sold to investors looking for the next big thing. Grand Pacific Trade Broker David Mossington said that the relationship between cryptocurrencies and fiat money has not yet been fully clarified. This is why all countries’ monetary authorities are trying to get a closer look at cryptocurrencies and blockchain projects involving fiat money.
Central bank’s concern
The central banks of different countries are monitoring the cryptocurrency market because they want to find out how cryptocurrencies and related technologies affect the traditional financial system, as well as what it means for people’s trust in money. The problem is that cryptos are not regulated by any institution, they are not controlled by any central bank, and their value is determined solely by demand.
Since the creation of Bitcoin in 2009, cryptocurrencies have experienced highs and lows that would make the boldest investors wince. Mr Mossington says that however, in spite of market fluctuations and governmental bans in some countries, cryptocurrency transactions continue to grow. And the more popular cryptocurrencies become, the more central banks are interested in understanding how they work and what role they will play in the future.
Different countries have different strategies to deal with the cryptocurrency market. Some central banks are studying cryptocurrencies and blockchain projects, while others have already published their conclusions on how cryptocurrencies relate to fiat money. Most central bank opinions on cryptos fall into one of two categories: either they consider cryptos as an alternative means of payment to fiat money, or they acknowledge cryptocurrencies as the money surrogate that is impossible to regulate.
Crypto vs fiat
Theoretically, cryptos can become an alternative to fiat money. Some experts argue that this will be possible only when the central banks lose their monopoly on printing fiat money; others believe that it will happen once cryptos are used in everyday life and prove their superiority over fiat means of payment. However, the very principle upon which cryptocurrencies were created contradicts the very idea of fiat money. Cryptocurrencies are decentralized and independent from any central authority; there is no government or regulator behind them to control their emission and circulation. This is why many economists believe that cryptos will never replace fiat money; they can likely evolve together – but this is a completely different story.
Mr Mossington says that some central banks are inclined to agree that cryptos can become an alternative to fiat money, but they have also expressed their concerns about the uncontrolled nature of cryptocurrencies. They believe that cryptos can create new risks for both investors and the financial system as a whole. For example, there are still no international standards or laws that would regulate cryptocurrencies and protect investors in case of cryptocurrency-related fraud, bankruptcy, or when the crypto disappears with someone’s money.
Central banks also fear that cryptos can be used to launder money and finance terrorist organizations. Meanwhile, cryptos remain outside the regulatory environment; they cannot be monitored by any financial institution because they operate on the blockchain platform, which is often based on foreign servers. Central banks cannot track cryptos or identify their owners because they operate on decentralization principles.
Central Bank of Russia
The central bank of Russia has decided to get in touch with a commercial bank and collect data of crypto transactions between individuals. The bank has decided to collect all the private information of both the senders and recipients. The officials say that they do not wish to gain full control over the transactions, in fact, they wish to identify the risk areas that are associated with wallets and payment cards issued to exchanges, casinos and other players. The bank wishes to gain excess anonymized data which might help criminals and cryptocurrency developers.
How would this help?
Mr Mossington says that it is necessary to work on new methods that would help fight against the laundering of funds, terrorism financing and tax evasion schemes. He also believes that crime monitoring programs should strive to identify suspiciously huge transactions that are processed through cryptocurrency exchanges. Such data can be helpful to the governments in identifying taxable income, which otherwise would seem untaxed. Also, the program might help in identifying cryptocurrency exchanges that are engaged with money laundering or other illegal activities.
As far as the regulatory framework is concerned, there is a Law on the Central Bank of the Russian Federation. This law states that any person who wishes to engage with operations related to cryptocurrencies will need to get approval from the bank’s governing body. In this case, we can see that the central bank is intent on following up and monitoring cryptocurrency transactions and wallets. This shows that they wish to remain active in this field and influence how cryptocurrencies will be used by investors and businessmen within Russia.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.