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ECB Concerned about the Spread of Cryptocurrency

ECB Concerned about the Spread of Cryptocurrency, Wants Global Response

Reading Time: 2 minutes by on February 9, 2018 Bitcoin, News, Regulation

Executive board member of European Central Bank (ECB), Yves Mersch, recently recognized digital currencies have the potential to spread internationally and does not feel this is something regulators should continue ignoring. Mersch outlined that economies should prepare for a global response to cryptocurrency platforms as he expects the use of cryptocurrencies to continue with its current hype.

In an interview with Bloomberg, Mersch said, “If you increasingly have bridges between the virtual world and the real world and then there is a collapse in this virtual world, it could drain liquidity from the real world,” He added, “This then becomes a concern for the central bank.”

Policymakers have not until very recently have not paid much attention to cryptocurrencies viewing current innovation as nothing more than a speculative experiment. Policy makers since holding this view have been challenged to adapt. Bitcoin has been heavily invested in during 2017 with the new wealth created totalling $684 billion within three month before the price of bitcoin entered into a stark decline in 2018.

Senior official Mersch shared his views about the need to control this financial assets, “We need more information. For me, one obligation would already be to force the unregulated platforms to report transactions in a harmonized way to repositories so that we would have access to information, also in order to create a better response.”

Benoit Coeure, French economist and ECB board member, stated in January that at the Group 20 meeting in Argentina due to take place March 2018 (where attendees include finance ministers and central bank chiefs) the prominent topic would be the move amongst the world’s largest economies to regulate cryptocurrencies. France and Germany are currently investigating this front.  

The head of the Bank for International Settlements, Agustin Carstens, said this week that there is a “strong case” for specialist in the digital currency fields to ensure the payment systems are functioning adequately and the value of “real money” is safeguarded.

Cartens also views bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster.”

In response to the comment made by Cartens, Merrsch said “You won’t be surprised to know that we at the ECB are fully in line with his views and we have similar worries, or similar endeavors we are working on.”

However, Mersh is not concerned to the same degree as he stated that they are more concerned about the social and psychological effect of cryptocurrencies, rather than disruption of the real economy.

During a debate on the ECB annual report which took place February 5, Mario Draghi indicated that banks have not been observed to have relevant holdings of bitcoin, hinting that financial institutions in the European Union are “showing a limited appetite for digital currencies like Bitcoin,” despite a frenzy amongst the public.

Draghi, however, did go onto say that banks in Europe could soon purchase and hold the cryptocurrency:

“…recent developments, such as the listing of Bitcoin futures contracts by US exchanges, could lead European banks too to hold positions in Bitcoin, and therefore we will certainly look at that.”

The ECB chief also touched on the issue of regulation, saying that “Banks should measure the risk of any holdings of digital currencies in their portfolio accordingly. Right now, digital currencies are not subject to a specific supervisory approach. Work is under way in the Single Supervisory Mechanism to identify potential prudential risks that these digital assets could pose to supervised institutions.”

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