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Dutch Central Bank Warns Banks & Institutions Virtual Currency Risks

Jayanand Sagar | June 2, 2014 | 5:50 pm
Uncategorized

Dutch Central Bank Warns Banks & Institutions Virtual Currency Risks

Jayanand Sagar | June 2, 2014 | 5:50 pm

We’ve seen plenty of times central banks warn consumers of the risks of getting involved with digital currencies, but the Dutch Central Bank is taking a different approach.

In a statement published on the central bank’s website, De Nederlandsche Bank (DNB) is warning banks and payment institutions of the integrity risks that virtual currencies bear.

The central bank points out that there exists a significant level of anonymity when it comes to digital currencies (like bitcoin, for example). The release (which is interestingly dated June 5, 2014) says (translated using Google):

In transactions and similar bitcoin virtual currency or altcoins, there is a high degree of anonymity. Banks and payment institutions should therefore be aware of the derived integrity risks they face because they are the identities of the parties involved in virtual currency sales or purchases not know or insufficient. DNB qualifies the current virtual currencies (bitcoin and other altcoins) as products with a very high risk profile.

DNB makes the point that while the idea of digital currency promotes transparency (see the block chain), transactions can not easily be traced to a physical person. As such, the central bank suggests this can serve as an attractive tool for money launderers.

The Central Bank isn’t taking measures to prevent the country’s banks for dabbling in digital currency, but reiterates of their “high risk profile”, adding that banks/financial outfits that do decide to get involved pass “rigorous tests” to ensure they are remaining in compliance with existing and applicable regulations.

Of course, applicable regulations may not be sufficient, because digital currency is unlike anything the world has ever seen before.

Digital currency will demand new regulations, and regulations that do not impede or otherwise prevent new players in the industry from flourishing.

For the DNB’s original statement (Dutch language), click here.

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