ECB: Cryptocurrencies Pose No Threat To Euro Zone Financial Stability

Editorial & Review Staff

Editorial & Review Staff

Editorial & Review Staff articles have been checked and revised.

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The European Central Bank (ECB) said cryptocurrencies do not pose any threat to the financial stability of the euro zone. This was the conclusion of an analytical study conducted by ECB’s Internal Crypto-Assets Task Force (ICA-TF).

The task force was established to analyze crypto assets’ potential implications for ECB’s monetary policy and the risks they may entail for the smooth functioning of market infrastructures and payments, as well as for the stability of the Euro area’s financial system.

The study finds that the combined value of crypto assets is small relative to the financial system, and their link with the financial sector are still limited.

The study finds no indications so far that banks in the EU have systemically relevant holdings of crypto-assets.

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.

In the Task Force’s view, the very low number of merchants that allow the purchase of goods and services with bitcoins indicates no influence of the most prominent crypto-asset on price-setting.

In its opinion, in the current regulatory framework, crypto-assets can hardly enter EU financial market infrastructures (FMIs).

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 authorized and to satisfy existing regulatory requirements.

The report warns that the sector requires continuous careful monitoring since crypto-assets are dynamic and linkages with the wider financial sector may increase to more significant levels in the future.

“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 fulfill the characteristics of a monetary asset in the near future,” the central bank said.

The ECB is not in favor of issuing a central bank digital currency, at least for the time being.

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