A new report by the British Commonwealth says that virtual currencies offer countries a cost-effective, fast and accessible alternative to settling financial payments, but unclear laws and regulations are required to discourage their exploitation by criminals.

It reads: " Member countries should be encouraged to make a positive determination on the legality of virtual currencies in their respective jurisdictions. Financial regulators and central banks should consider making public statements on the legality of virtual currencies and the applicability of any existing legislative frameworks. Education and funding should be provided for training for law enforcement."

Virtual currencies, which allow funds to be transferred, traded or stored electronically, have seen exponential growth in recent years. Unlike other currencies, they are not issued by central financial authorities. The report notes that Bitcoin, Litecoin and Dogecoin are cropping up in everyday use in most Commonwealth countries.

Despite being unregulated or under-regulated, virtual currencies are legal in all Commonwealth countries except Bangladesh. The report claims to represent "the first step in improving legislative and regulatory frameworks in the Commonwealth to protect the legitimate use of virtual currencies and prevent cybercrime."

The report says that virtual currencies - at the heart of which is a ‘blockchain’ acting as a digital ledger of transactions - offer individuals and organisations an alternative to banks. They can be a cheaper and faster way to trade goods, make payments and send and receive money, for example offering diaspora communities a means of sending funds overseas without paying high transfer fees. In some countries where virtual currencies are fairly widely used, such as Singapore, it is not unusual to see a Bitcoin cash machine or ATM.

Sandra Sargent, a senior operations officer at the World Bank and a contributor to the report, said: "I have seen a decisive shift in attention towards block chain technologies among private banking institutions.”

The report urges member countries to foster an awareness of virtual currencies within their jurisdictions and of the potential risks involved. It recommends financial regulators and central banks take actions to confirm the applicability of existing legislation, and calls for more funding and training to be provided for law enforcement. It also suggests tax authorities clarify tax regimes applicable to virtual currencies and adapt or extend them as necessary. Safeguards for consumers do not exist and there is no facility to refund a fraudulent or disputed transaction. If a user loses login credentials or is hacked, he can lose access to his ‘wallet’ or account. The report therefore wants to see answers to these problems as well.