by JP Buntinx
The European Central Bank (ECB) is not a big fan of virtual money. That is quite an understatement, as the financial institution urges EU regulators to “curb the growth” of virtual money solutions. While there is no indication these pleas will lead to additional regulation in the European Union, it is another example of how the ECB is afraid of losing control. In fact, they have something to fear from Bitcoin and other cryptocurrencies, as they make a central authority such as the ECB somewhat obsolete.
ECB Pleads With Regulators and Policymakers
It has to be said, the European Union is quite pro-Bitcoin and cryptocurrency right now. There is no specific guideline on taxing cryptocurrency, nor are there any plans to do so in the near future. But if it is up to the European Central Bank, that situation will need to change sooner rather than later.
The European Central Bank shared the following opinion with Reuters:
“The reliance of economic actors on virtual currency units, if substantially increased in the future, could in principle affect the central banks’ control over the supply of money … although under current practice, this risk is limited. Thus (EU legislative bodies) should not seek in this particular context to promote a wider use of virtual currencies. Buying goods and services would not be covered by any of the control measures provided for in the proposal and could provide a means of financing illegal activities.”
To be more precise, the ECB is concerned they may lose control over the monetary supply in the euro zone if digital currencies start to substitute fiat, which will lessen the central bank’s ability to control short-term interest rates. For now, the financial institution controls short-term interest rates to influence economic activity via their balance sheet holdings. Losing control over these features would beg the question as to how useful the European Central Bank really is.
Playing the “regulation card” is not entirely surprising, even though it shows the ECB has legitimate concerns over alternative financial solutions in the EU. Under the current legislation, platforms and exchanges dealing with financial tools need to perform thorough identity checks for all customers. Bitcoin companies are adhering to these rules, as it is impossible to purchase cryptocurrency without verifying one’s identity.
A Short-Sighted Opinion?
It is anybody’s guess as to who gave the ECB the idea to position itself as a spokesperson for every resident in the European Union. Although Bitcoin is not going mainstream just yet, there are a lot of cryptocurrency enthusiasts who do not share the central bank’s opinion on this matter.
What is rather striking is how this entire plea seems to ooze a lack of confidence among ECB members. To be more precise, the institution wants to retain its control over the EU’s money supply at all costs. Whether or not regulators and policymakers will listen to this desperate plea, remains to be seen for now.