Bitcoin No Threat Yet but Crypto ‘Phenomenon’ Needs Monitoring: European Central Bank

The European Central Bank (ECB) has found that crypto does not pose risks to financial stability in the Eurozone. The central bank does recommend, however, that European legislatures create a uniform approach to crypto-assets.

CRYPTO MARKET? TOO SMALL TO MATTER, ECB SAYS

The ECB has set up an advisory committee called the Crypto-Assets Task Force (ICA-TF) to examine the ramifications and impact of cryptocurrencies on the European economy. Their May 2019 report, “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures”, has some interesting findings.

The Task Force found that, at the current market size, crypto assets do not represent a threat to the European economy or Euro area monetary stability:

“Crypto-assets do not fulfil the functions of money and, at the current stage, neither do they entail a tangible impact on the real economy nor have significant implications for monetary policy.”

Implicit in this finding is that it would be different if the crypto market were larger. Parsing the language the Task Force used in the report, one senses that the ECB is advising regulators across Europe to be prepared for when crypto markets are larger.

BE READY FOR EXPANSION

While the report finds that the “very low number of merchants that allow the purchase of goods and services with bitcoins indicates no influence of the most prominent crypto-asset on price-setting,” it also warns that the influence of crypto could grow.

The report concludes by highlighting the potential for cryptos to become disruptive to the European economy as the market grows and their use becomes more widespread. Per the Task Force, it is:

“… important that the ECB continue to monitor the crypto-assets phenomenon, raise awareness and develop preparedness for any adverse scenarios, in cooperation with other relevant authorities.”

LACK OF A UNIFORM APPROACH RISKY

The Task Force suggests that the lack of a uniform approach to cryptocurrencies needs to be addressed. The European Central Bank has long been dismissive of cryptocurrencies, with president Mario Draghi recently declaring:

“Bitcoins or anything like that are not really currencies, they are assets. A euro is a euro – today, tomorrow, in a month, it’s always a euro. And the ECB is behind the euro. Who is behind the cryptocurrencies? So they are very, very risky assets, the value of which oscillates – as you’ve seen – wildly.”

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The central banker’s vice president said at the end of 2017 that cryptocurrencies would never replace fiat. As the report points out, cryptocurrencies are not currently regulated in Europe. Should the market become more significant, expect that to change.

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