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The report shows that Bitcoin as a virtual currency is markedly different from e-money and cautions regulators and policy makers not to confuse the two. There are few similarities between Bitcoin and e-money other than both being in digital format, according to the report. While e-money is a mechanism for interacting with government-issued and regulated currencies such as dollars and euros, Bitcoin is a virtual currency that has no fiat currency counterpart. Bitcoin is based on a decentralized peer-to-peer network that can be transferred somewhat anonymously and can be highly volatile in terms of value. The full report is available at CGAP.
On the other hand, e-money is digitally issued against equal value of fiat currency, and it can be centrally regulated, usually by a central bank. The report also points out that, unlike Bitcoin, there is growing evidence that e-money schemes have helped bring people into the formal financial system, especially in developing countries through mobile phone technology. Sarah Rotman, Financial Sector Specialist at CGAP and author of the report. While we shouldn’t completely rule out Bitcoin’s future potential in this market, it’s very difficult to predict where Bitcoin will be in five years and if it can have any impact for the poor. With the current widespread attention surrounding Bitcoin, the report warns that regulatory concerns about the virtual currency could spill over to e-money and cause previously favorable regulatory progress to be retracted. It concludes that for e-money to continue to open access to the formal financial system for the world’s unbanked, continuing with proportional regulation is essential. Established in 1995, CGAP is a global think-tank which seeks to advance financial inclusion.