The European Central Bank underestimates cryptocurrencies.

The Central Bank underestimates cryptocurrencies

The European Central Bank underestimates cryptocurrencies as it does not consider them to have a relevant role

The European Central Bank underestimates cryptocurrencies. He recently stated that are not currently a threat to financial stability in the euro zone. But, although without showing enthusiasm, it does not close the door to its use.

All this he affirmed in your last document on the subject that was posted on Friday. In it, the ECB said that the combined value of crypto assets is small relative to that of the financial system. He further argued that financial sector ties to cryptocurrencies remain limited. There are banks in the EU that don't seem to have crypto assets worth considering.

Cryptocurrencies are not money

The European Central Bank thinks that currently cryptocurrencies do not perform the functions of money. The number of traders who operate with them is low. The entity tneither has a tangible impact on the real economy or on monetary policy.

In the document's own words:

The high volatility of crypto asset prices, the absence of support from central banks, and the limited acceptance among traders prevent crypto assets from currently being used as substitutes for cash and deposits, and make it very difficult for crypto assets to meet the characteristics of a monetary asset.

He also reflects on the recent volatility of these types of securities. The ECB says they could become less volatile if they were guaranteed by central bank reserves. But the thing is not so easy. Doing this could pose new problems. According to the same document:

"This collateralization could lead to additional demand for central bank reserves, which could have implications for monetary policy and its implementation."

Will there be a European Bitcoin?

The European Central Bank does not rule out issuing its own digital currency. Although, to tell the truth, he doesn't show much enthusiasm in doing it at the moment either. In principle, a European cryptocurrency could be designed as an easy-to-use and risk-free asset that meets the public demand for a secure and digitized economy, ”says the central bank.

In fact, Mario Draghi, president of the entity, did dismiss it. At the time he said that the ECB does not see any "concrete need" to issue a digital version of the euro. He also voiced his impression that EU financial institutions do not appear to be as enthusiastic about cryptocurrencies as the public.

Outside the regulatory framework

Crypto assets too are outside the scope of the current regulation of payment services of the EU. Furthermore, under the current regulatory regime, crypto assets' can hardly enter the infrastructures of the financial markets of the EU (MFUE).

Let us quote the document again:

Crypto assets cannot be used to settle systemically important MFUEs, the problem is that they cannot be considered securities.

Central securities depositories (DCV) may not proceed to liquidate encrypted assets. Even if central banks were to clear crypto-asset-based products, they would have to be licensed and meet existing regulatory requirements. Although this would imply additional costs and without clear benefits for the economy of the European Union

However, it concludes that the risks or possible implications of the technology are "limited and / or manageable based on existing market needs ...".
regulatory and supervisory frameworks ”.

Why do I say you underestimate cryptocurrencies?

It is true that bankers have to be conservative. Blockchain technology is relatively new, and security issues have been reported. But, in my opinion it is a political decision.

The use of cryptocurrencies as it is proposed means a loss of control. It would be an algorithm and not politicians that would decide the size of the monetary base.

However, there is a lot to do in terms of security. The great challenge is how to achieve an adequate degree of control without falling into the same defects of the current monetary system.


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  1.   edkalrio said

    I think you underestimate the European Central Bank.

    I disagree that the decision is political. All the actions of the ECB and the ESCB are aimed at a very specific and simple objective, such as price stability (inflation around 2%), which is a purely technical criterion. The ECB acts with political independence and European governments do not have or need any monetary policy competence, as they can achieve the same results with fiscal policies.

    I'm sorry to tell you that there will never be an official cryptocurrency because it is technically unnecessary. Blockchain technology does not solve any monetary problem and if they ever issued digital monetary assets it would be with a centralized registry model, which is much easier to implement and requires much less resources, offering the same security.

    It is not about the loss of control over the money supply. Although Bitcoin has an arbitrary limit of 21M, that does not mean that the algorithm cannot be modified to introduce more coins. In fact, there are cryptocurrencies that implement dynamic money supply models and the ECB does not contemplate them either because cryptocurrencies try to solve a problem that does not exist and they do not even succeed. It doesn't scale well, transactions are very expensive and slow, and it consumes so much energy that it is environmentally unsustainable.

    I would like you to delve into those monetary problems that you talk about at the end so that we can debate it.

    If you want you can check some [entries] (https://lunaticgeek.com/tags/bitcoin/) that I wrote a long time ago to try to cool down the Bitcoin hype.

    1.    Diego German Gonzalez said

      Thanks for your comment. I promise to read the links and dig deeper in the next few days

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