Crypto currency : a study of its effect on European banking

Abstract

Financial Innovation is an ongoing process in the banking industry. Crypto Currency is a form of financial innovation that has developed in the last few years. As a consequence the term and its significance is not that familiar among people in general. This dissertation sets out to: i) Explain what Crypto Currency is ii) Identify the effects it could have on the European Banking System A qualitative approach was adopted to gather the primary data required for this research. Interviews were conducted among a select number of individuals on the basis of non-probability purposing sampling. All interviewees come from the finance and education sectors. Secondary research was also carried out to highlight the development of Crypto Currency and study the effects it could have on European finance. The study confirmed that as a relatively new means of transaction, Crypto Currency is still in its infancy and hence its use is negligible compared to the use of real money. The main appeal of Crypto Currency is the avoidance of extra charges that one has to bear when using normal currency. The general opinion is that it will increase in popularity with the passage of time. However, owing to the collateral risks involved it is viewed with some skepticism by European financial institutions. If the use of Crypto Currency expands, it could adversely affect the European Banking System and European economy. To forestall such an undesirable occurrence, the European Central Bank monitors the development of this virtual currency. The Maltese financial sector follows the European Banking Authority’s advice and stays away from trading in virtual currency. All respondents as well as the financial reviewers quoted in this research believe that regulations should be developed to control Crypto Currency. In line with other advances in technology, Crypto Currency is expected to gain in popularity. European countries should start aligning their financial laws to provide the setting where a common regulatory process could be established to control Crypto Currency.