A group of European economists believe bitcoin is no threat to the financial stability, although regulatory oversight needs to be increased, new research shows.
In a survey published yesterday by the U.K.-based Center for Macroeconomics, 100 prominent European university economists were asked for their thoughts regarding the recent market growth of bitcoin and cryptocurrencies.
According to the results from the 50 respondents – in response to the question "Do you agree that cryptocurrencies are currently a threat to the stability of the financial system, or can be expected to become a threat in the next couple of years?" – nearly 50 percent of the respondents said they "disagree," while another 25 percent "strongly disagree."
Some economist argued that, even with a near-$300 billion market capitalization, bitcoin is still trivial compared to the overall financial market.
For example, Michael McMahon, professor in economics from the University of Oxford, was quoted as saying:
"Cryptocurrencies are still too small and lacking in widespread ownership, especially among large investment groups, to be a serious risk to the overall financial system."
Similarly, Ethan Ilzetzki, assistant professor from the Economics Department Centre for Macroeconomics at London School of Economics, called bitcoin and other cryptocurrencies "a toy for a very narrow segment of investors." Further, they are "detached" from the financial system and the "real economy," he said.
While not recognizing bitcoin as a threat, a majority of the respondents still expressed concerns around the role of bitcoin and its challenge to traditional central bank-issued currencies. In fact, 61 percent of the interviewees either "agree" or "strongly agree" that regulatory oversight of cryptocurrencies needs to be increased.
For instance, Sylvester Eijffinger, professor of financial economics at Tilburg University, argued that cryptocurrencies are "undermining the monopoly of money creation by the central banks and [leading to] the ineffectiveness of conventional and unconventional monetary policy."
However, the European Central Bank takes a somewhat different view on bitcoin. Addressing the European Parliament late in November, the president of the ECB, Mario Draghi, stated that digital currencies are "not yet something that could constitute a risk for central banks."
Stacks of coins image via Shutterstock