ECB needs more power over bitcoin, finds report

A report commissioned by Boston-based Suffolk University recommends that the European Central Bank (ECB) and the Federal Reserve should be given a mandate over the regulation of bitcoin in order to monitor the potential threats posed by the cryptocurrency.

Entitled ‘‘$=€=Bitcoin?’’, the report’s author, Hilary J. Allen believes that bitcoin poses a substantial threat to the future of the financial system.

The report argues that bitcoin (and any other virtual currencies) needs to become ubiquitous in order to reach its full potential, with Allen stating that bitcoin could ‘‘revolutionize the way that payments are processed.’’

When going into more detail regarding the mandate, Allen believes that the central bank would bear the brunt of a potential bitcoin crash.

‘‘Even if the central bank had no mandate to regulate virtual currencies, a failure of a widely-used virtual currency could imperil confidence in the central bank, which could adversely affect its ability to govern the more traditional money supply and payment systems,’’ stated the report.

Allen then speculates on the potential effects of a financial crisis caused by the potential failure of bitcoin.

‘‘If a serious systemic crisis were to result, interbank lending would seize up entirely because of a general lack of confidence in financial institutions and their collateral – and if interbank lending seizes up, then the flow of credit to the economy at large will also seize,’’ continued the report.

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