Virtual and local currencies: are paracurrencies the new form of money?

Abstract

The phenomenon of virtual and local currencies, which we will call “paracurrencies” in this paper, is not new. However, in recent years, new technological developments have encouraged their development and have led to them becoming widespread at global level. This increasing expansion and the potential money substitution effect of these currencies have prompted regulators and supervisors to begin to pay particular attention to them. Currently, despite the initial intentions that they might have to substitute money, they cannot be considered as money and they will not foreseeably replace money in future. Nevertheless, the increasing popularity of paracurrencies could lead to a rise in the risks to the financial system. The identified risks to the stability of the financial system are limited for the moment, since paracurrencies are not widespread and their connection with the financial system is limited. However, the risks for consumers can be significant, even when they are used within a limited scope, as is the case at present. supervisors’ and regulators’ efforts to date have focused on the assessment of the phenomenon and the monitoring of these risks, with the purpose of evaluating whether to adopt measures to mitigate them and the advisability or not of developing a specific regulatory framework for paracurrencies.