EU Central Bank Asserts That Cryptocurrencies Pose No Threat to Financial Stability

by | May 20, 2019 | Cryptocurrency, Cryptocurrency News

EU Central Bank | Cryptocurrencies | Financial Stability | Europe

The European Central Bank (ECB) published a paper on Friday concerning cryptocurrencies, within which the ECB claims that the digital assets do not pose a threat to financial stability in the euro zone.

ECB states in the paper that the combined value of crypto-assets is small in relation to the financial system and “linkages” with the financial sector are still limited. It was further added that the banks in the EU do not appear to have “systemically relevant” holdings of crypto-assets.

In saying so, the ECB also sais that cryptocurrencies do not perform the functions of money. There is no “tangible impact on the real economy” or on monetary policy as a  “very low” number of merchants currently allow buying of goods and services with bitcoin. The central bank says:

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.”

As for the concept of stablecoin, ECB asserts that cryptocurrency could be made less volatile by collateralized them with central bank reserves. Though that would give way for issues to address as “Such collateralization could result in additional demand for central bank reserves, which could have implications for monetary policy and its implementation.”

Currently, the ECB does not seem to be inclined towards issuing a central bank digital currency, however, it is keeping an open mind for exploration due to the evolving digital economy. The central bank says:

“In principle, a CBDC could be designed as a user-friendly risk-free asset that meets the public’s demand for an economy that is both digitalized and safe.” 

ECB continues that crypto assets aren’t inside the scope of current EU payment services regulation and that under the current regulatory regime, crypto-assets “can hardly enter EU financial market infrastructures (FMIs).” The paper states:

“Crypto-assets cannot be used to conduct money settlements in systemically important FMIs. To the extent that they do not qualify as securities, central securities depositories (CSDs) cannot undertake settlement of crypto-assets. Even if crypto-assets-based products were to be cleared by central counterparties (CCPs), these would need to be authorised and to satisfy existing regulatory requirements, albeit at additional costs and with no clear benefits to EU CCPs.”

In conclusion, ECB adds that the  risks or potential implications of the technology are “limited and/or manageable on the basis of the existing regulatory and oversight frameworks.” A sentiment that ECB has iterated multiple times over the years.

Read more: SprinkleXchange Plans To List Its First Company In June

Image source – Stock Photos Secret

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