The European Central Bank (ECB) is dismissing the impact of digital assets on economic stability as of now, according to a report published earlier this week. The report, which was named “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures,” contained an assessment by the financial regulator as regards cryptocurrencies and how they could affect both monetary policy and the economic development of European nations.
It was prepared by the Crypto-Assets Task Force (ICA-TF), a committee set up by the Bank to gain proper insights into the disruptions caused by digital assets within its jurisdiction.
Cash trumps crypto… for now
In the report, the Bank states that while cryptocurrencies do not currently fit the description of money, they have a potential for affecting the parameters listed above if they prove to become a recognized substitute for deposits and cash. It also states that there is a current limit on the adoption of cryptocurrencies, pointing out the continued volatility in prices and the fact that only a few merchants provide support for it. However, the Bank states that widespread use and a broader market for cryptocurrencies will undoubtedly see them become more economically disruptive.
In part, the report said, “It is important that the ECB continues to monitor the crypto-assets phenomenon, raise awareness and develop preparedness for any adverse scenarios, in cooperation with other relevant authorities.”
Could the ECB just be biased?
The report seemed to echo the dismissive sentiment expressed earlier this month by Mario Draghi, the President of the ECB. While speaking with the winners of the Generation Euro Students’ Award at the ECB Youth Dialogue Meeting, Draghi fielded questions from these award winners. Speaking on the issue of cryptocurrencies, he claimed that Bitcoin (BTC) and other cryptocurrencies aren’t currencies per se, and likened them more to being just financial assets.
He continued, “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? So they are very, very risky assets.” He also pointed out that as of now, digital assets aren’t enough in their entirety to have significant effects on the European macroeconomy.
Beware of stablecoins
In addition to its dismissal of digital assets, the Task Force also issued a warning to local financial institutions to keep an eye on the development of stablecoins; digital assets whose values are tied to fiat currencies and other tangible assets. According to the report, it is essential for these stablecoins to be monitored, because their values could become much less volatile if they get pegged to central bank reserves.
The Task Force also decried the absence of a central banking authority to help protect the use of digital currencies. The report claimed that such a monetary authority will be required if crypto assets are ever to be seen as a form of money. It cited that this could help curb the stinging issue of price volatility, thereby assisting a digital asset to work much better as a store of value, a means of payment, and a unit of account.