Cryptocurrencies pose no threat to financial stability, says ECB

By Staff Writer

Cryptocurrencies do not pose any threat whatsoever to the financial stability, nor does it have any impact on the makings of monetary policy, researchers from the European Central Bank have in a paper released on Friday.

The ECB said that the value of all the cryptocurrencies is very inferior to the financial system, at the same time, the “linkages” to the financial sector are not sophisticated yet. Moreover, a significant number of banks in the EU seem not to have “systematically relevant” crypto holdings.

It also reiterated its stance that cryptos do have the characteristics that would allow them to function as money. Furthermore, very few merchants accept the digital assets as payment for goods and services hence no “tangible impact on the real economy.”

“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 fulfill the characteristics of a monetary asset in the near future,” the ECB writes.

While commenting on regulations in the EU, the ECB said.

“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.”

The ECB is also currently not in favor of issuing a central bank digital currency, but is open to exploration due to the evolving digital economy.

“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 digitalised and safe,” the central bank says.

Crypto-assets also come outside the scope of current EU payment services regulation, the paper said. Further, under the current regulatory regime, crypto-assets “can hardly enter EU financial market infrastructures (FMIs).”

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