The internet era has generated a requirement for low cost, anonymous and rapidly verifiable transactions to be used for online barter, and fast settling money have emerged as a consequence. For the most part, e-money has fulfilled this role, but the last few years have seen two new types of money emerge. Centralised virtual currencies, usually for the purpose of transacting in social and gaming economies, and crypto-currencies, which aim to eliminate the need for financial intermediaries by offering direct peer-to-peer online payments. We describe the historical context which led to the development of these currencies and some modern and recent trends in their uptake, in terms of both usage in the real economy and as investment products. As these currencies are purely digital constructs, with no government or local authority backing, we then discuss them in the context of monetary theory, in order to determine how they may be have value under each. Finally, we provide an overview of the state of regulatory readiness in terms of dealing with transactions in these currencies in various regions of the world.

Trends in Crypto-Currencies and Blockchain Technologies: A Monetary Theory and Regulation Perspective

The internet era has generated a requirement for low cost, anonymous and rapidly veriable transactions to be used for online barter, and fast settling money have emerged as a consequence. For the most part, e-money has fullled this role, but the last few years have seen two new types of money emerge. Centralised virtual currencies, usually for the purpose of transacting in social and gaming economies, and crypto-currencies, which aim to eliminate the need for nancial intermediaries by oering direct peer-to-peer online payments. We describe the historical context which led to the development of these currencies and some modern and recent trends in their uptake, in terms of both usage in the real economy and as investment products. As these currencies are purely digital constructs, with no government or local authority backing, we then discuss them in the context of monetary theory, in order to determine how they may be have value under each. Finally, we provide an overview of the state of regulatory readiness in terms of dealing with transactions in these currencies in various regions of the world.

/pdf/trends-in-crypto-currencies-and-blockchain-technologies-a-5956g55s97.pdf

Trends in crypto-currencies and blockchain technologies: A monetary theory and regulation perspective

We develop the first basic Operational Risk perspective on key risk management issues associated with the development of new forms of electronic currency in the real economy. In particular, we focus on understanding the development of new risks types and the evolution of current risk types as new components of financial institutions arise to cater for an increasing demand for electronic money, micro-payment systems, Virtual money and cryptographic (Crypto) currencies. In particular, this paper proposes a framework of risk identification and assessment applied to Virtual and Crypto currencies from a banking regulation perspective. In doing so, it addresses the topical issues of understanding important key Operational Risk vulnerabilities and exposure risk drivers under the framework of the Basel II/III banking regulation, specifically associated with Virtual and Crypto currencies. This is critical to consider should such alternative currencies continue to grow in utilisation to the point that they enter into the banking sector, through commercial banks and financial institutions who are beginning to contemplate their recognition in terms of deposits, transactions and exchangeability for fiat currencies. 
We highlight how some of the features of Virtual and Crypto currencies are important drivers of Operational Risk, posing both management and regulatory challenges that must start to be considered and addressed both by regulators, central banks and security exchanges. In this paper we focus purely on the Operational Risk perspective of banks operating in an environment where such electronic Virtual currencies are available. Some aspects of this discussion are directly relevant now, whilst others can be understood as discussions to raise awareness of issues in Operational Risk that will arise as Virtual currency start to interact more widely in the real economy.

Opening discussion on banking sector risk exposures and vulnerabilities from virtual currencies: An operational risk perspective

We develop the first basic Operational Risk perspective on key risk management issues associated with the development of new forms of electronic currency in the real economy. In particular, we focus on understanding the development of new risk types and the evolution of current risk types, as new components of financial institutions arise to cater for an increasing demand for electronic money, micro-payment systems, Virtual money and cryptographic (Crypto) currencies. The article proposes a framework of risk identification and assessment applied to Virtual and Crypto currencies from a banking regulation perspective. In doing so, it addresses the topical issues of understanding important key Operational Risk vulnerabilities and exposure risk drivers under the framework of the Basel II/III banking regulation, specifically associated with Virtual and Crypto currencies. This is critical to consider, should such alternative currencies continue to grow in utilisation to the point that they enter into the banking sector, through commercial banks and financial institutions which are beginning to contemplate their recognition in terms of deposits, transactions and exchangeability for fiat currencies. We highlight how some of the features of Virtual and Crypto currencies are important drivers of Operational Risk, posing both management and regulatory challenges that must start to be considered and addressed both by regulators, central banks and security exchanges. In this article, we focus purely on the Operational Risk perspective of banks operating in an environment where such ‘electronic’ Virtual currencies are available. Some aspects of this discussion are directly relevant now, while others can be understood as discussions to raise awareness of issues in Operational Risk that will arise as Virtual currency starts to interact more widely in the real economy. We propose a structure of risk analysis starting with the exposures and vulnerabilities of Virtual and Crypto currencies as the drivers of Operational Risk for these new means of exchange. Then, by using risk drivers, our approach allows us to highlight the sources of possible adverse consequences, when using or generating Virtual and Crypto currencies. These are then mapped into the risks associated to the Basel categories, providing an easier view of regulatory response, and better mitigation techniques. In addition, this will help identify and address the root causes of the Operational Risks associated with Virtual and Crypto currencies, rather than just presenting their symptoms.

Opening discussion on banking sector risk exposures and vulnerabilities from Virtual currencies: An Operational Risk perspective

Mobile payment systems have been predicted to grow at the same pace as mobile phones and internet shopping for several years now. However, their slow adoption in most countries calls into question the general justifications rooted in economic and technology-acceptance models. This paper proposes that the successful adoption of mobile payment systems depends more on satisfying institutional constraints found in country-specific environments, rather than complying with industry- and resource-based views. Following a review of institutions, institutional carriers, and their constraining effects, mobile payments are examined from the perspective of regulative, normative, and cognitive institutional carriers. Then, the case of Japan's widely used mobile payment system Mobile Suica is introduced to illustrate how a tight institutional fit can ensure wide acceptance. The findings of this research can be applied to other mobile payment systems currently offered to identify and minimize the gaps with their institutional environment, thus speeding up their adoption.

/pdf/an-institutional-perspective-of-mobile-payment-adoption-the-10soi5f8bh.pdf

Ruth Halpin

Papers

Developments in electronic money regulation – the Electronic Money Directive: A better deal for e-money issuers?