The European Parliament’s Committee on Economic and Monetary Affairs (ECON) latest dialogue, Virtual Currencies and Central Banks Monetary Policy: Challenges Ahead, says cryptocurrency is unlikely to take the place of fiat currency, even in the long term.
The July report, says that despite many skeptical opinions, the Bitcoin experiment has not only survived but expanded beyond niche status. Its broad popularity was due in most part to the 2017 bubble which was responsible for attracting new participants to the market.
While the report argues that cryptocurrency is fundamentally private money, and past experiments with private money, such as during the free banking era in the US in the 19th century, failed for a number of reasons, it believes some cryptocurrencies, such as Bitcoin, may be able to overcome some historic disadvantages.
Virtual currencies are a contemporary form of private money. Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast. This gives them good prospects for further development say the report’s authors:
To compare them to failed money experiments of the past is limited virtual currencies have a better chance to survive and develop as compared to their predecessors. However, they remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas. But, in extreme cases, such as during periods of hyperinflation, financial crisis, political turmoil, or war, they can become a means of currency substitution in individual economies.
The report takes a brief look back at the history of private money and concludes that future progress in technology might increase the chances for virtual currencies to effectively compete with sovereign currencies, including the major ones.