The European Central Bank (ECB) has published a report on digital currencies, entitled "Virtual currency schemes - a further analysis" that identifies their remarkable growth in recent years and studies some of their dynamics and challenges.
The report states that at present, the use of bitcoin for payments is not much widespread and it is used for nearly "69,000 transactions per day world over, as compared to a total of 274 million non-cash retail payment transactions per day for the EU alone". Hence, the ECB does not consider virtual currency posing a considerable risk to the banking activities.
"Many schemes have appeared, and some have already disappeared again, but around 500 exist at the time of writing," the report said.
The central bank report also mentioned the disadvantages for digital currencies, namely, lack of transparency, clarity and continuity; high dependency on IT; anonymity of the participants involved and high volatility. Moreover, it said that the cryptocurrency ecosystem exposes users not only to payment system risks, but also to other risks such as exchange rate risk, to counterparty risk, and investment fraud risk.
Talking about the advantages the report said that the digital currency system is cost-effective, has global reach, quick settlement and can develop alternative payment solutions.
It further says that a new or improved virtual currency scheme has the potential of being more successful in the future, particularly for payments within "virtual communities/closed-loop environments (e.g. internet platforms) and for cross-border payments". This calls for a closer look by the central banks, as they have to ensure price stability, financial stability and smooth operation of payment systems.
"Therefore, the Eurosystem will continue monitoring developments, notably for payments-related aspects of VCS," it added.
