ECB: Cryptocurrency Doesn’t Pose a Material Risk to European Financial Stability
According to an article released by the European Central Bank (ECB), the cryptocurrency sector does not have a considerable influence to threaten the European Union (EU) financial sector. Global Government Forum reports that the existing regulatory framework helps manage risks associated with bitcoin and other virtual currencies.
Cryptocurrency Won’t Disturb Mainstream Finance
The Internal Crypto-Assets Task Force (ICA-TF) of the European Central Bank (ECB) recently published a 40-page paper titled – “Crypto Assets: Implications for Financial Stability, Monetary Policy, and Payments and Market Infrastructure”.
Despite the volatile nature of the industry and associated risks, the ICA-TF claimed that bitcoin and other virtual currencies do not yet threaten the financial sector of the EU economy. An excerpt from the paper reads:
“At the current stage, crypto assets do not fulfill the functions of money, neither do they entail a tangible impact on the real economy nor have significant implications for monetary policy.”
Furthermore, the body said since very few merchants allow the use of bitcoin and other altcoins to purchase goods and services, it shows that the virtual currency sector doesn’t exact considerable influence on price-setting.
The ECB also seems confident in its existing regulatory framework to manage cryptocurrency risks, as the article states that even early 2018 virtual currency market boom was not enough to elicit concerns for the EU financial system.
However, the EU expresses concern at the lack of a uniform regulatory system for bitcoin and other digital currencies. The European body opines that the regulatory framework in different countries is mostly uncoordinated or inconsistent, creating room for what it calls “regulatory arbitrage”.
Furthermore, the body cautions that the virtual currency sector is dynamic and requires constant monitoring. Buttressing the above, paper states:
“It is therefore important that the ECB continue to monitor crypto-assets phenomenon, raise awareness and develop preparedness for any adverse scenarios, in cooperation with other relevant authorities.”
EU Policymakers Still Ignorant of Cryptocurrency’s Disruptive Potential
While the ECB recently acknowledges that the mainstream financial isn’t under immediate threat from the cryptocurrency sector, the body is clearly not oblivious of the industry’s disruptive potential.
Back in 2018, Europe’s apex bank which like other traditional financial institutions who see bitcoin and other virtual currencies as a risky investment stated that the continuous spread of digital currencies should be a priority for regulators globally.
In November 2018, an ECB executive board member, Benoit Coeure said that bitcoin was a combination of three things – a bubble, a Ponzi scheme, and an environmental disaster.
BTCManager recently reported that ECB policymaker, Francois Villeroy favored stablecoins over bitcoin and other altcoins, as they are less prone to volatility.