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Cryptocurrency should not be dismissed as a fad

Cryptocurrency and its surrounding ecosystem are facilitating competition and efficiency in a growing number of financial services.

16 October 2022

The International Monetary Fund (IMF) is considering regulating cryptocurrency. In a new paper published in September 2022, the IMF states that "innovations that have given rise to the crypto ecosystem could create potential benefits through greater competition and efficiency in some financial services such as trade financing and cross-border payments."

According to the paper published by the IMF entitled Regulating the Crypto Ecosystem, "[a]pplying decentralised technologies can offer consumers compelling alternatives to traditional finance."

Although the IMF sees benefits with cryptocurrency, it expresses deep reservations and proposes clear recommendations for a global regulatory framework of controls and risk management combined with local guidelines.

Click here to download the report from the IMF

Mario Blazevic, who heads Tietoevry Banking's Card Services business area, says that large investments in cryptocurrency and all the innovations they bring with it will transform the finance market.

"It's important that we have well-functioning money and payment systems in place. For this reason we should expect to see regulation of cryptocurrency that safeguards the need by governments to control capital flows from a tax and security perspective and, most importantly, to fulfil the social responsibility of a central bank, which is to promote financial stability," says Blazevic.

"Self-regulation and market discipline through market forces are important, but they're not enough, so laws and regulations will likely become more important moving forward. That in turn may influence the properties of cryptocurrencies, as Peder Østbye in Norges Bank's Department for Financial Stability writes in a blog.

Central bank digital currency based on crypto technology

All central banks are currently exploring the possibility of a central bank digital currency. The European Central Bank is investigating the possibility of introducing a digital euro.

Sweden and China have launched pilot projects looking at central bank digital currencies. Central bank digital currencies have already been introduced in the central banks in some emerging economies.

In Norway, where the possibility of a central bank digital currency is currently being explored, Norges Bank has identified several benefits of introducing a central bank digital currency based on crypto technology:

  • A central bank digital currency serves as a back-up solution in the event of failure in the ordinary electronic payments systems or weakened confidence in the banking system.
  • It may/will sustain or promote competition in the payment market.
  • A central bank digital currency can be used as an obligatory means of payment.

Another important benefit with crypto technology that is often mentioned is the possibility to transfer money to other countries, with no intermediaries, faster and at lower costs. An absence of geographical barriers in the economy would facilitate simpler and faster cross-border trade for businesses.

"The challenge is that no good answer currently exists for how a Norwegian central bank digital currency could be transferred abroad without any form of conversion. This is one of the challenges central banks need to resolve in their ongoing investigations of central bank digital curries," says Mario Blazevic.

Anonymity is another aspect of current cryptocurrency systems. The identity of the sender and recipient can be hidden in blockchain technology, and multiple layers protect personal data.

We may end up compromising when it comes to anonymity in transactions in central bank digital currencies.

"Central bank digital currencies must be as simple to use as cash, and small amounts will therefore most likely be anonymised, while large amounts will be regulated to make society more efficient and reduce economic crime," says Blazevic.

We need regulation – and the sooner the better

"Regulation is the key to a well-functioning global payment system, but technology is developing rapidly, and there's an urgent need to get a framework for digital currency in place.

"The actors who control the technology behind cryptocurrency today are the ones who are in fact controlling the market. The question is what kind of society we want: do we want a society where the government has control or should anonymous economic anarchists decide?" asked Odd Woxholt, a divisional director in the Norwegian Tax Administration during a panel debate on cryptocurrency held in August during Arendal Week in Norway.

The future of cryptocurrency

Since regulations are not yet in place and large central banks are still in the investigation phase, cryptocurrencies like Bitcoin are what most people think about when we talk about digital currency.

“It's important to stress that cryptocurrency is still in its infancy. The market value of all the world's cryptocurrencies is currently around 900 billion US Dollars, That's roughly half the market value of Microsoft at 1.7 trillion US Dollars," says Blazevic.

A growing number of businesses are now accepting cryptocurrency as a means of payment, among them MasterCard, Starbucks and PayPal. Many believe that cryptocurrency can change their lives in the same way as the internet and mobile phones have done.

"With central bank digital currency on the way, cryptocurrency has the potential to change how financial services and the economy work. Cryptocurrency is a tool that allows more and more businesses and countries to participate in the global economy," says Blazevic.

"Cryptocurrency should not be dismissed as a fad," he adds.

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Mario Blazevic

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