European Central Bank Believes Bitcoin and Crypto Assets Serve as Zero Risk to Financial Stability

The European Central Bank (ECB) believes that digital currencies such as Bitcoin (BTC) do not pose risks to financial stability, at least in the eurozone. The information was released by the monetary authority of the eurozone in a recently published paper. Mario Draghi, the president of the ECB has also commented about this issue a few days ago.

ECB Says Cryptos Do Not Pose Risks To Financial Stability

The ECB explained in this recently released paper that cryptocurrencies are not a risk to financial stability. At the same time, they said that these digital assets do not perform the functions of money since there is a very small number of merchants accepting bitcoin. Moreover, they consider that European banks do not have “systemically relevant” holdings of digital currencies.

The ECB explained:

“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.”

In addition to it, the ECB explained that in the future, these virtual currencies could become less volatile. This would happen if these virtual currencies are collateralized by reserves of central banks.

This report has also discussed issues regarding central bank digital currencies (CBDCs). They mentioned that they are not in favour of issuing these CBDCs. However, they are opened to understand how they work and how they could improve the economy.

Additionally, virtual currencies are out of the scope of EU payment services regulation. The report also explains that with the current regulatory regime, virtual currency assets will not be able to enter the EU financial market infrastructures (FMIs).

As mentioned before, the risks and implications of virtual currencies are limited and/or manageable on the basis of the current regulatory and oversight frameworks.

We wrote a few weeks ago that Mario Draghi, the president of the ECB, said that digital assets are very risky and that they do not pose risks to financial stability in the Eurozone. Moreover, he mentioned that central banks shouldn’t be worried about them.

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