Breakthroughs in financial technology (fintech), ranging from early coins and banknotes to card payments, e-money, mobile payments, and more recently, cryptocurrencies portend transformative changes to the financial and monetary systems. Bitcoin (BTC) and cryptocurrencies bear a significant resemblance to base money or central bank money (CeBM). This functional similarity can potentially pose several challenges to central banks in various dimensions. It may pose risks to central banks' monopoly over issuing base money, to price stability, to the smooth operation of payment systems, to the conduct of monetary policy, and to the stability of credit institutions and the financial system. From among several potential policy responses, central banks have been investigating and experimenting with issuing central bank digital currency (CBDC). This paper investigates CBDC from a legal perspective and sheds lights on the legal challenges of introducing CBDC in the euro area. Having studied the potential impact of issuing CBDC by the European Central Bank (ECB), particularly on the banking and financial stability, on the efficient allocation of resources (i.e., credit), as well as on the conduct of monetary policy, the paper concludes that issuing CBDC by the ECB would face a set of legal challenges that need to be resolved before its launch at the euro area level. Resolving such legal challenges may prove to be an arduous task as it may ultimately need amendments to the Treaty on the Functioning of the European Union (TFEU).
Bitcoin is a distributed system. The dilemma it poses to the legal systems is that it is hardly possible to regulate a distributed network in a centralized fashion, as decentralized cryptocurrencies are antithetical to the existing centralized structure of monetary and financial regulation. This article proposes a more nuanced policy recommendation for regulatory intervention in the cryptocurrency ecosystem, which relies on a decentralized regulatory architecture built upon the existing regulatory infrastructure and makes use of the existing and emerging middlemen. It argues that instead of regulating the technology or the cryptocurrencies at the code or protocol layer, the regulation should target their use-cases. Such a regulatory strategy can be implemented through directing the edicts of regulation towards the middlemen and can be enforced by the existing financial market participants and traditional gatekeepers such as banks, payment service providers and exchanges, as well as large and centralized node operators and miners.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.