The European Central Bank (ECB) has said that cryptocurrencies are currently not a threat to financial stability in the euro zone.
In its latest paper on the subject, published Friday, the ECB said the combined value of crypto-assets is small relative to the financial system, and “linkages” to the financial sector are still limited. Further, banks in the EU do not appear to have “systemically relevant” holdings of crypto-assets.
The ECB also said cryptocurrencies do not perform the functions of money. A “very low” number of merchants currently allow buying of goods and services with bitcoin, and there is no “tangible impact on the real economy” or on monetary policy.
The central bank says:
“The high price volatility of crypto-assets, the absence of central bank backing and the limited acceptance among merchants prevent crypto-assets from being currently used as substitutes for cash and deposits, as well as making it very difficult for crypto-assets to fulfil the characteristics of a monetary asset in the near future.”
Regarding the stablecoin concept, the ECB says that cryptos could become less volatile if they were collateralized by central bank reserves. That could bring new issues to address, however: “Such collateralisation could result in additional demand for central bank reserves, which could have implications for monetary policy and its implementation.”
The ECB is also currently not in favor of issuing a central bank digital currency, but is open to exploration due to the evolving digital economy.
“In principle, a CBDC could be designed as a user-friendly risk-free asset that meets the public’s demand for an economy that is both digitalised and safe,” the central bank says.
Crypto-assets also come outside the scope of current EU payment services regulation, it continues. Further, under the current regulatory regime, crypto-assets “can hardly enter EU financial market infrastructures (FMIs).”
The paper states:
“Crypto-assets cannot be used to conduct money settlements in systemically important FMIs. To the extent that they do not qualify as securities, central securities depositories (CSDs) cannot undertake settlement of crypto-assets. Even if crypto-assets-based products were to be cleared by central counterparties (CCPs), these would need to be authorised and to satisfy existing regulatory requirements, albeit at additional costs and with no clear benefits to EU CCPs.”
However, it concludes that, the risks or potential implications of the technology are “limited and/or manageable on the basis of the existing
regulatory and oversight frameworks.”
The paper largely echoes sentiments already made public by the ECB. Back in September, the institution’s head, Mario Draghi, said that the ECB sees no “concrete need” to issue a digital version of the euro. He also previously said that financial institutions in the EU do not appear to be as enthusiastic about cryptocurrencies as the public.
ECB image via Shutterstock
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