OECD Working Papers on Finance, Insurance and Private Pensions

ISSN: 
2079-7117 (online)
DOI: 
10.1787/20797117
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Selected studies on finance, insurance and private pensions policy prepared for dissemination in order to stimulate wider discussion and further analysis and obtain feedback from interested audiences. The studies provide timely analysis and background on industry developments, structural issues, and public policy in the financial sector. Topics include risk management, governance, investments, benefit protection, and financial education. Previous papers addressing these policy issues are available via http://dx.doi.org/10.1787/19936397.
 

The Bitcoin Question

Currency versus Trust-less Transfer Technology You or your institution have access to this content

English
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Author(s):
Adrian Blundell-Wignall1
Author Affiliations
  • 1: OECD, France

16 June 2014
Bibliographic information
No.:
37
Pages:
20
DOI: 
10.1787/5jz2pwjd9t20-en

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The financial crisis has led to a widespread loss of trust in financial intermediaries of all kinds, perhaps helping to open the way towards the general acceptance of alternative technologies. This paper briefly summarises the crypto-currency phenomenon, separating the ‘currency’ issues from the potential technology benefits. With respect to crypto currencies, the paper argues that these can’t undermine the ability of central banks to conduct monetary policy. They do, however, raise consumer protection and bank secrecy issues. The valuation of Bitcoins and price volatility issues are discussed, as well as electronic theft, contract failures, etc., all of which could result in large losses to users and hence ultimate costs to the taxpayer (e.g. the failure to provide adequate private pensions resulting in increased reliance on public pensions). The anonymity features of the crypto-currencies also facilitate tax evasion and money laundering, both of which are major public policy concerns. The technology associated with crypto-currencies, on the other hand, could ultimately shift the entire basis of trust involved in any financial transaction. It is an innovation that creates the ability to carry out transactions without the need for a trusted third party; i.e. a move towards trust-less transactions. This mechanism could work to eliminate the role of many intermediaries, thereby reducing transactions costs by introducing much needed competition to incumbent firms. The generic issues that policy makers need to examine are summarised.
Keywords:
intermediaries, monetary policy, plenary powers, legal tender, Gold standard, trust-less transaction, Bitcoin, payment technology
JEL Classification:
  • E5: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit
  • F39: International Economics / International Finance / Other
  • F65: International Economics / Economic Impacts of Globalization / Finance
  • G19: Financial Economics / General Financial Markets / Other
  • G2: Financial Economics / Financial Institutions and Services
 
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