The authorities have been closely monitoring the trading of cryptocurrencies and the potential risks, but have yet to see a strong case for banning the trading of bitcoin and other virtual currencies on domestic exchanges. However, regulators have vowed to establish a regulatory system for cryptocurrencies to prevent money laundering and terrorism financing, following in the steps of the US, South Korea, Japan, China and India.
At a forum on Friday last week to begin a drive against money laundering among domestic financial institutions, Minister of Justice Chiu Tai-san (邱太三) said the nation’s cryptocurrency regulations would be completed ahead of a review in November by the Asia Pacific Group on Money Laundering, while Financial Supervisory Commission Chairman Wellington Koo (顧立雄) said the authorities are considering adopting a “real name” registration system for cryptocurrency trading.
Transactions of the most widely known cryptocurrency, bitcoin, have continued to capture headlines since last year. The virtual token prides itself on the anonymity of its transactions and the absence of national borders. If people want to get their hands on bitcoin, they can use a private key to encrypt transactions or mine it themselves.
Local media have reported that, tucked away in the back alleys of Taipei, there are offices crammed with computers mining bitcoin around the clock, while other reports have said that more technology firms, from chipmakers to graphics card suppliers, are jumping on the bitcoin mining bandwagon.
Even though cryptocurrencies have not yet become a threat to financial stability in Taiwan, because their trading is not financed with loans and the relevant markets are rather small, regulation of cryptocurrencies must be considered in light of their extreme volatility, which poses great risks to investors.
Moreover, transactions of virtual money should be regulated because of the growing role cryptocurrencies play in money laundering and other criminal activities.
Even so, authorities around the world should not consider cryptocurrencies just an investment tool for speculation or a vehicle to finance criminal activities. In humankind’s history, money has evolved from seashells, rocks and skulls to metals and paper. The emergence of cryptocurrencies should be seen as part of a continually changing medium of exchange, although whether it will one day become a reliable store of value and a major force in influencing global financial systems is still in question.
Some countries view paying with cryptocurrencies as illegal and their central banks do not recognize them as legitimate tender, while other countries — including Taiwan — classify cryptocurrencies as high-risk commodities that are subject to government supervision.
However, no matter what the governments think, the long-term development of cryptocurrencies is tied to the progress of blockchain and various forms of distributed ledger technology, as well as the perceived need for insurance by investors, in that bitcoin, for instance, is emerging as a hedging tool to minimize financial risk, especially in “war zone” countries in Africa or the Middle East.
If financial technology can be considered a helpful tool in engineering innovation and reducing costs in the financial industry, even though it does pose a threat to established banks, why can cryptocurrencies not be viewed as a natural product of people’s desire to stay outside state-controlled monetary systems, despite the ire of central banks?
Admittedly, there are genuine concerns about cryptocurrencies in terms of transparency, safety and reliability, and it is necessary to launch protection mechanisms for investors as soon as possible, but governments should be practical and open-minded about cryptocurrencies and their future development, which is likely to bring about a fundamental shift in global monetary and financial systems.
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