European Central Bank: ‘No Plans’ for Digital Currency, Cash Demand Growing

The European Central Bank is not planning on issuing its own digital currency under current conditions, President Mario Draghi has confirmed.

The European Central Bank (ECB) has “no plans” to issue its own digital currency, President Mario Draghi told the European Parliament Wednesday, September 12.

Addressing a query by MEP Jonás Fernández, Draghi said “substantial development” was still needed in the underlying technology behind cryptocurrencies before the Central Bank would consider using them.

“The ECB and the Eurosystem currently have no plans to issue a central bank digital currency,” he summarized:

“Nonetheless, we are carefully analysing the potential consequences of issuing such a currency as a complement to cash.”

Explaining why no plans were afoot at the ECB, Draghi drew attention to those same factors.

“…The technologies which could potentially be used to issue a central bank digital currency […] have not yet been thoroughly tested and require substantial further development before they could be used in a central bank context,” he told Fernández, adding:

“With regard to the central bank administering individual accounts for households and companies, this would imply that the central bank would enter into competition for retail deposits with the banking sector and lead to potentially substantial operational costs and risks.”

He added there was at present “no concrete need” to issue an additional currency within the eurozone, saying demand for cash banknotes “continues to grow” in the EU28.

Draghi continues the wary stance the 28-member bloc has traditionally held on bank-issued cryptocurrency, in contrast to moves by countries such as Russia and China.

Earlier this year, a joint report from the ECB and Bank for International Settlements (BIS) highlighted “side effects” of a potential launch of such a currency, also considering the need for more research beforehand.

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European Central Bank’s Mersch Says Banks Should ‘Segregate’ Crypto Trading

The European Central Bank’s Yves Mersch stated that banks should “segregate” their dealings in cryptocurrencies from other activities, saying crypto doesn’t “qualify” as money

European Central Bank (ECB) board member Yves Mersch has said that banks should “segregate” their dealings in cryptocurrencies from other activities, Reuters reported May 14.

Reuters quotes Mersch as raising concerns over the high volatility of crypto markets, emphasizing that digital tokens “do not qualify as money,” and that their issuers, as well as dealers, exchanges, banks, or clearing houses, should be regulated.

Mersch reportedly noted that even at its peak market capitalization in January 2018 –  which Mersch mistakenly reports as $432 bln rather than the actual $800 bln – the crypto market is still too small to threaten financial stability. He said however that if cryptocurrencies were to be used as collateral for bank loans or for settling trades at clearing houses, there would be an argument for such activities being “ring-fenced” from other trading and investments.

As Reuters notes, the European banks regulated by ECB are not currently dealing in crypto. In the US, investment banking giant Goldman Sachs recently announced it would be opening a crypto trading desk “within weeks.”

ECB’s Yves Mersch has been a staunch critic of the increasing interconnection of the traditional financial sector with the cryptocurrency space, saying that cryptocurrencies pose a risk of “contagion and contamination of the existing financial system” in February this year.

Notwithstanding Mersch’s concerns – that are shared by others such as the Bank of International Settlements’ (BIS) Augustín Carstens – the ECB’s Chair of the Supervisory Board Daniele Nouy told CNBC in February that future involvement of the ECB in cryptocurrency regulation was likely to be “very, very low”.

In March, ECB and BIS issued a statement on Bitcoin, as well as central bank-issued digital currencies (CBDCs), saying they are “not the answer to the cashless economy.”

ECB has however championed blockchain’s potential for transforming securities settlements, against the backdrop of the European Commission’s Blockchain Observatory, which aims at “uniting” the European economy around the technology.

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