European Central Bank Pushes for Tighter Digital Currency Control

The ECB said that digital currencies like bitcoin pose a potential threat to its ability to manage monetary policy.

AccessTimeIconOct 18, 2016 at 3:11 p.m. UTC
Updated Dec 10, 2022 at 9:31 p.m. UTC
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The European Central Bank (ECB) has urged its members to impose tighter controls on the activities of companies that exchange virtual currencies or custody them for their clients.

The comments come as the European Union moves toward extending the economic bloc's anti-money laundering statutes to cover digital currency activities. At the same time, the ECB has been conducting its own investigations of both digital currencies like bitcoin as well as its underlying technology.

Perhaps most notable in the ECB’s legal opinion, publishedhttps://www.ecb.europa.eu/ecb/legal/pdf/en_con_2016_49_f_sign.pdf earlier this week, is its assertion that the broader adoption of digital currencies "could in principle affect the central banks’ control over the supply of money" and impact its role in seeking price stability.

The ECB states:

"Thus, while it is appropriate for the Union legislative bodies, consistent with the FATF’s recommendations, to regulate virtual currencies from the anti-money laundering and counter-terrorist financing perspectives, they should not seek in this particular context to promote a wider use of virtual currencies."

The opinion paper isn't the first instance in which the ECB has sought to question the impact of digital currencies. Last year, the central bank described them as "inherently unstable", while at the same time making the argument that the technology could have an impact on future monetary policymaking.

"Although [virtual currency system] units are not denominated in euro, they do have the potential to have an impact on monetary policy and price stability, financial stability and the smooth operation of payment systems in the euro area," the ECB said at the time.

Image Credit: ilolab / Shutterstock.com

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