The ECB Considers Central Bank Digital Currency Units
The European Central Bank (ECB) concluded that the cryptocurrency market posed no threat to the fiat currency and the financial stability as a whole, according to “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures.”
It is well-known that the ECB President Mario Draghi is not a supporter of Bitcoin and other cryptocurrencies, but the central bank clarified that the market wasn’t a risk for the eurozone.
Crypto Market Value Too Small
The document noted that the combined value of all digital assets is still insignificant compared to the traditional economy and fiat currencies. Besides, only a small number of merchants accepts crypto payments, mainly because of the high volatility and low stability.
The ECB noted:
The high price volatility of crypto-assets, the absence of central bank backing and the limited acceptance among merchants prevent crypto-assets from being currently used as substitutes for cash and deposits, as well as making it very difficult for crypto-assets to fulfil the characteristics of a monetary asset in the near future.
The central bank said that, in theory, crypto assets might have implications for monetary policy, but they needed to become a credible replacement for cash and deposits.
The size of the crypto industry is still small, and it quite isolated from the broader financial system and the real economy. Thus, crypto-assets in their present form have no direct impact on monetary policy.
Meanwhile, the ECB will continue to monitor the dynamic of crypto assets, especially the development of stablecoins. The bank has more expectations from stablecoins as they can ensure a significant reduction in price volatility and see wider adoption.
For those unfamiliar, stablecoins are blockchain-based tokens pegged to fiat currencies, such as the USD or euro. Some popular examples are Tether’s USDT, USDC and True USD.
The ECB noted that crypto assets were still unregulated in the European Union, as they don’t fit under any relevant legal acts, such as PSD2, EMD2, and MiFID. The only regulatory framework touching upon cryptocurrencies is the fifth Anti Money Laundering Directive (AMLD5).
Should Central Banks Issue Blockchain-Based Currencies?
The paper also discussed the possibility of central banks to issue blockchain-based currencies. While the ECB admits such a scenario, it doesn’t consider central bank digital currency (CBDC) a cryptocurrency.
The bank said:
Issuing a central bank digital currency (CBDC) is not contingent upon the use of a specific technology such as DLT. Moreover, CBDC would not constitute a new asset type. From this perspective, CBDC needs to be analysed separately from crypto-assets.
The position of the euro as the single currency of the eurozone is not affected by the potential adoption of CBDCs. The bank analyses the notion of CBDC as a possible form of the euro that would complement banknotes, coins, and deposits issued by the ECB.
The document reads:
Research suggests that any hypothetical CBDC would come with both benefits and costs and would have manifold implications, ranging from its impact on financial stability to its interaction with the transmission of monetary policy and the operational efficiency of payment systems.
Earlier in 2019, Ardo Hansson, governor of the Estonian central bank and an ECB representative, openly expressed his criticism against digital currencies, stating that they were a “complete load of nonsense.”
As mentioned, ECB President Mario Draghi also said that Bitcoin was not a currency. He insisted that a euro is always a euro, and the central bank is behind it. “Who is behind the cryptocurrencies?” – Draghi rhetorically asked. He concluded that crypto coins are very risky assets prone to wild volatility.
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