Europe and Central Asia Economic Update

Cryptocurrencies and Blockchain: Europe and Central Asia Economic Update

With growth in Europe and Central Asia likely at its peak, this report addresses two major questions: How well is the region prepared for an expected slowdown? And how well has the economic upswing been used to adjust to the digital revolution? This report focuses on cryptocurrency and blockchain activities in the region.

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Economic Developments

The Europe and Central Asia region experienced 2.7% GDP growth in 2017 – the fastest growth since the 2008 Global Financial Crisis. Growth was especially strong in Central Europe and in Turkey, but was robust in other parts of the region as well. Growth in the region is projected at 2.3% for 2018.

However, growth has now likely peaked in the region. Unemployment rates close to their 2007 levels and average inflation now exceeding 2% are some of the signals that growth will decelerate going forward.

This raises several questions for the region. How well is the region prepared for an expected slowdown? And how well has the economic upswing been used to adjust to the digital revolution? 

Cryptocurrencies and Blockchain: Hype or Transformational Technologies?

The emergence of cryptocurrencies and blockchain technologies is part of a broader wave of technologies which, for a variety of reasons, have gained traction after the 2008 Global Financial Crisis.

Blockchain technologies organize peer-to-peer transactions and information flows without companies that operate digital platforms. Cryptocurrencies are the most advanced application of blockchain technologies: they create money without Central Banks and facilitate payments without financial institutions.

Serious limitations have become apparent, however. The evidence is mounting that decentralized organization of markets without trusted intermediaries can be very costly. And, the volatility of the value of cryptocurrencies is a big disadvantage to their becoming an alternative to legal tender.

The emergence of blockchain technologies has triggered a flurry of activities in Europe and Central Asia. Start-up companies are mining cryptocurrencies and are providing blockchain services, while individuals are using cryptocurrencies for cross-border transactions, or as speculative investments.

Governments eager to digitize and streamline public services are experimenting with blockchain technologies to make them more secure and more transparent. At the same time, cryptocurrencies and blockchain technologies pose a range of policy challenges:

  • Applying rules of financial oversight, consumer protection and tax administration.
  • Dealing with the excessive use of electricity in the mining of bitcoin and some other cryptocurrencies.
  • Determining whether government should support start-up companies that specialize in blockchain technologies.
  • Determining if blockchain technologies can be used by governments and Central Banks to improve their services.

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Previous Economic Updates

Migration & Mobility

The report found that economic growth in Europe and Central Asia was stronger than previously expected. At the same time, the region faces both opportunities and challenges with regard to new technologies, more flexible labor contracts, and migration. October 2017

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Trade in Transition

The report found that policies focused on improving trade in Europe and Central Asia are crucial for building on the modest growth. May 2017

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Polarization and Populism
While the Brexit vote and the refugee crisis are testing the European Union’s internal cohesion, continued vulnerabilities in European banking sectors are curbing the economic recovery. November 2016

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The Impact of China on Europe and Central Asia
The report focused attention on the impact of China’s GDP slowdown and economic transformation, which opens up both challenges and long-term opportunities for economies of Europe and Central Asia. April 2016

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Low Commodity Prices and Weak Currencies
Against the backdrop of a weakening global economy and volatility in international financial markets, countries of the Europe and Central Asia are transitioning to a new normal. October 2015

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