Virtual currencies given a reality check


Bitcoin might be stuck in a black hole of complexity and some nefarious uses, but the likelihood of an online currency gaining acceptance soon is a major challenge for the world’s central banks and regulators, says Melbourne Business School alumnus Rhys Bollen (MBA 2010).
“Bitcoin is unique, not because it is a virtual currency, but because it is proof of concept of a decentralized, non-issued, electronic currency,” Rhys told the inaugural Financial, Regulation and Corporate Governance Conference (FIRCG) at MBS.

“Most regulatory regimes are not well designed to cater for this type of payment system, but creating and protecting trust is crucial to regulating, and the public accepting, any new payment service.”

Sydney-based Rhys is the Director of Policy, at Fair Trading NSW, a Senior Fellow at Monash University’s law faculty and a former Senior Manager at the Australian Securities and Investments Commission (ASIC).

Delighted to be back at MBS, he detailed the risks and challenges posed by online currencies in winning over consumers and regulators as a new payment method, including from mobile devices.

“The significance of bitcoin, and the blockchain technology behind it, is that it makes transactions a whole lot cheaper than most of the existing payment systems,” he said.

“But bitcoins are fiddly and volatile and probably make the average person nervous, but my personal prediction is that the blockchain technology it relies on will be used by more consumer friendly organisations and become the guts of the next PayPal or Visa/MasterCard payment system, and why that system will be cheaper.”

The FIRCG Conference attracted leading finance researchers from around the world, including professors David Yermack and Stephen Brown from the Stern School of Business at New York University and Dr James Chapman from the Bank of Canada, who shared his favourite bitcoin analogy.

“Bitcoin and blockchain is like teenage sex. Every thinks everyone else is doing it. Nobody knows how to do it, everybody talks about it and, therefore everyone says they’re doing it,” Dr Chapman said.

“The Bank of Canada’s position is that bitcoin is a good proof of concept, and we can easily see central banks in the future creating their own money, using the blockchain technology it’s based on”.

While bitcoins were the hot topic, the conference papers covered a range of issues, including how governance reforms have inhibited board decision-making and how fund managers from poor families deliver higher alphas than managers from rich families.

Organised by the FIRCG research group, the conference was made up of researchers from the Melbourne Business School and Faculty of Business and Economics at the University of Melbourne.

In her opening speech, conference co-organiser, Dr Nadia Massoud, said her group’s purpose is to expand the impact of research on issues that affect financial institutions, corporate governance and risk management.

“These issues are increasingly global in nature, making the ability to connect and collaborate internationally increasingly important, especially for a nation like Australia, whose economy is one of the most open in the world and highly sensitive to economic changes elsewhere,” she said.