According to the ECB Crypto update, currently, Bitcoin is no threat to Europe's financial stability. As the report points out, cryptocurrencies are not currently regulated in Europe.
“Even at their peak in early 2018 the outstanding value of crypto-assets was too small to give rise to concerns for the EU financial system and the economy,” the report entitled “Crypto-Assets: Implications for financial stability, monetary policy, and payment and market infrastructures” stated.
ECB Crypto update: Bitcoin is no threat to eurozone
The ECB has formed an advisory committee called the Internal Crypto-Assets Task Force (ICA-TF) in March 2018 to monitor and investigate the implications and risks of cryptocurrencies on the European market. The paper analyzed the risk of crypto-assets in the areas of monetary policy, financial stability, and financial market infrastructures.
Following careful analysis, the task force found that crypto-assets do not represent an immediate threat to the Euro area financial stability at the current market size. In its ramifications for monetary policy, the report stated that crypto-assets are not effectively competing against cash and deposits at the present stage.
Crypto Does Not Fulfill the Functions of Money
One key aspect of cryptocurrencies that many enthusiast points towards when offering a bullish assessment of the future of cryptocurrency is the fact that in many ways they could fully replace fiat currency, while simultaneously offering users a plethora of benefits.
Despite this, the Bank dismissed this notion in their recently released ECB Crypto update, explaining that in their current state, cryptocurrencies pose no tangible impact to the “real economy” and should not sway monetary policy.
“Crypto-assets do not fulfill the functions of money and, at the current stage, neither do they entail a tangible impact on the real economy nor have significant implications for monetary policy,” the report stated, adding that the combined value of crypto assets is relatively small and that EU banks have no relevant crypto-asset holdings.
Crypto-assets needs monitoring
In the meantime, crypto-assets cannot be used to conduct money settlement in financial market infrastructures (FMIs). However, depending on their regulation in the future, they may enter FMIs and worsen the risk profile. The paper still warned that although only a few merchants are accepting Bitcoin as a payment method, crypto-assets are dynamic and can grow in the near future.
“It is therefore important that the ECB continues to monitor the crypto-assets phenomenon, raise awareness and develop preparedness for any adverse scenarios, in cooperation with relevant authorities,” the paper noted.
The ECB crypto update was released after ECB President Mario Draghi told a student earlier this month that cryptocurrencies are not currencies but “highly risky” assets.
“Bitcoins or anything like that are not really currencies, they are assets. A euro is a euro – today, tomorrow, in a month, it’s always a euro. And the ECB is behind the euro. Who is behind the cryptocurrencies?”
Consistent with the ICA-TF report, Draghi believes that cryptocurrencies have no significant impact on the existing fiat-based economies. The central banker’s vice president said at the end of 2017 that cryptocurrencies would never replace fiat. As the report points out, cryptocurrencies are not currently regulated in Europe. We can expect that to change should the market become more significant.
Despite this negative sentiment, cryptocurrencies have actually been incurring a massive amount of adoption recently, and major companies - which includes the likes of Facebook and possibly Amazon - are looking to implement their own cryptocurrencies in addition to their existing payment infrastructures in an effort to shore up additional profits and to bolster the efficiency of their platform’s infrastructure.
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