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UAE Central Bank did the right thing on virtual currency

Its easy availability could have undermined the stability of the financial regime

Gulf News

Recently, it has become noticeable that the UAE Central Bank is taking bold and well thought through decisions, especially when it comes to protecting the banking and financial system against the rapid and serious changes taking place in the global financial system.

The bank, as part of its polices, has continued enhancing its gold reserves, deeming it a safe haven asset. The gold reserves have doubled in a short time, taking advantage of the sharp decline in the price of the yellow metal. This means strengthening the bank’s basket of reserves on one hand and achieving significant gains if gold prices improve on the other.

Lately, the bank took a brave decision, banning the use of all virtual currencies, especially “Bitcoin” which has dramatically spread causing prices to double through virtual and fake transactions that result in customers incurring grave losses.

Explaining the reasons behind such decision, the bank noted that it aims to safeguard customers against fraud as virtual currencies are unsafe to deal and are not created according to the central bank’s system, neither subject to supervision and follow-up, and deemed as a way out for money laundering.

Although many countries have allowed the circulation of bitcoin and in some cases created purpose-built machines for that, there are many who recognised the risks dealing with virtual currencies that have no existence and may vanish at any time, incurring on dealers massive losses that may affect the overall financial system.

With that in mind, the UAE Central Bank took a swift action to protect customers and the financial system in the country. And to prove its seriousness in executing the decision, it obliged all banks including foreign ones not to deal with virtual currencies even in the country of origin.

We have already highlighted the risks involved in dealing with virtual currencies whose developers and dealers are yet to be known as the process of purchasing and selling virtual currencies are conducted behind screens amid fake transaction highs and lows.

For example, the Bitcoin price had increased from $300 to $1,200 and then plummeted to under $700. Later, it increased to $1000, causing huge losses for some customers while advantaging others. It is true that the virtual world has strongly emerged in modern times and deeply affect social values and interaction between people. The resultant repercussions vary from one domain to another.

Some of the impact can be easily overcome while others may lead to wasted savings and disadvantaging investors who may not comprehend the serious implications of such deals on their life and future.

When a person wants to know who stands behind the issuance and circulation of these currencies, they will arrive at nowhere. This means there is a hidden authority that controls the market of virtual currencies and achieve great profits at the expense of customers who are not that familiar with the principles of these transactions.

Yes, there are several inducements offered for customers, especially during speculation, which lead to a doubling of prices of virtual currencies and in no time may collapse. Unfortunately, such currencies are being dealt with at hotels and restaurants to encourage clients by making the whole thing looking like a natural deal.

Indeed, thanks for the central bank and its quick action. The stability and protection of the Emirati financial system is a top priority, especially in the light of the UAE’s transformation into a global financial hub that draws sizeable investments seeking risk guarantees.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.