ECB Chief: Bitcoin and Crypto Assets Too Volatile, Illiquid, and Speculative for Payments

European Central Bank (ECB) president Christine Lagarde is making the case for a digital euro and against the use of Bitcoin and crypto for payments.

As the coronavirus pandemic accelerates the digitalization of the economy, Christine Lagarde says the Eurosystem must adapt to the rapid transformation.

She says a digital euro could provide Europeans unrestricted access to money that is backed by a central bank and allow the eurozone to maintain monetary sovereignty

“It could be important in a range of future scenarios, from a decline in the use of cash to pre-empting the uptake of foreign digital currencies in the euro area. Issuing a digital euro might become necessary to ensure both continued access to central bank money and monetary sovereignty.

A properly designed digital euro would create synergies with the payments industry and enable the private sector to build new businesses based on digital euro-related services.”

When it comes to Bitcoin and crypto, Lagarde notes that although blockchain technology has created unique use cases, she believes crypto assets pose risks and BTC is too volatile to serve as money.

“The main risk lies in relying purely on technology and the flawed concept of there being no identifiable issuer or claim. This also means that users cannot rely on crypto-assets maintaining a stable value: they are highly volatile, illiquid and speculative, and so do not fulfill all the functions of money.”

As for stablecoins, which utilize crypto technology and are designed to be pegged to the price of fiat currencies or assets such as gold, Lagarde says she believes they raise privacy concerns and could ultimately threaten financial stability.

“Although stablecoins could drive additional innovation in payments and be well integrated into social media, trade and other platforms, they pose serious risks.

If widely adopted, they could threaten financial stability and monetary sovereignty. For instance, if the issuer cannot guarantee a fixed value or if they are perceived as being incapable of absorbing losses, a run could occur. Additionally, using stablecoins as a store of value could trigger a large shift of bank deposits to stablecoins, which may have an impact on banks’ operations and the transmission of monetary policy.

Stablecoins, particularly those backed by global technology firms (the ‘big techs’), could also present risks to competitiveness and technological autonomy in Europe, as they would attempt to leverage their competitive advantage and control of large platforms. Their dominant positions may harm competition and consumer choice, and raise concerns over data privacy and the misuse of personal information.”


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