This article was originally published here.
The European Central Bank (ECB), in charge of administering the monetary policy of Eurozone countries, has released a paper related to virtual currencies and their implications for financial stability, monetary policy and payments.
Mario Draghi, the president of the ECB has recently talked about digital assets explaining that they do not pose risks to financial stability.
ECB Releases Paper About Virtual Currencies
The paper seems to be explaining what Mario Draghi recently commented about digital assets. The report explains that Bitcoin (BTC) and other digital currencies do not “fulfil the functions of money.” Moreover, these cryptocurrencies do not have a tangible impact on the real economy.
The European Central Bank suggests that these cryptocurrencies do not have significant implications for monetary policy. However, this could change if virtual currencies reach mass adoption or if they are used as “credible” substitutes for cash and deposits.
At the same time, they mention that there is a low number of merchants that use Bitcoin as a means of payment and that accept it for their goods and services. That means that they have no influence on “price-setting” and that they are not accepted all over the world.
In addition to it, the volatility that these digital currency assets have and the absence of central bank backing makes it very difficult for Bitcoin and cryptocurrencies to fulfil the characteristics of a monetary asset in the near future.
Occasional paper: Crypto-Assets – Implications for financial stability, monetary policy, and payments and market infrastructures https://t.co/3lFPhcbk1R
— European Central Bank (@ecb) May 17, 2019
On the matter, the report reads as follows:
“The high volatility of crypto-assets, 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-asses to fulfil the characteristics of a monetary asset in the near future.”
They have also explained that Bitcoin and digital assets were not competing against cash and deposits. That means that they are not able to compete against fiat currencies such as the Euro.
The report has also talked about stablecoins and how they would impact monetary policy. In this regard, it remains to be seen if these stablecoins can offer a reduction in price volatility and reach a larger number of users. In addition to it, stablecoins could become less volatile if coins were collateralised by central bank reserves.
It is worth remembering that Mario Draghi, the president of the ECB, explained that cryptocurrencies are not real currencies. He has also stated that they are “very, very risky assets,” and that central banks shouldn’t be worried about them.
Europe doesn’t have any specific common regulation for virtual currencies and there are some countries such as Malta that are already receiving a large influx of crypto and blockchain-related companies.