Thursday, May 26, 2022

ECB Studying Alleged Bank Risks Posed by Digital Currencies

ECB Studying Alleged Bank Risks Posed by Digital Currencies

European Central Bank (ECB) President Mario Draghi says that the institution is currently studying cryptocurrencies to get an idea of the risks they pose to banks. Europe is looking closer and closer at digital assets. 

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Taking A Step Back

As bitcoin and its fellow cryptocurrencies continue to plummet to record-lows, the trust the world once held in digital money is beginning to wane. The idea that crypto prices can be manipulated or that they can somehow cause irreparable repercussions in the world of finance is not a thought many find pleasant, and authorities want to know what they’re getting into.

In a recent parliamentary meeting, Draghi expressed his concern about cryptocurrencies, saying they were “very risky assets,” as they primarily exist in “unregulated” spaces. At press time, bitcoin is trading for about $6,900 USD – roughly 67 percent less than its December ’17 high of over $19,000.

“Right now, digital currencies are not subject to a specific supervisory approach,” he explained to attending members. “Work is underway in the SSM to identify potential risks that these digital assets could pose to supervised institutions. We are observing a systematically relevant holding of digital currencies by supervised institutions – by banks, in other words. The credit institutions established in the European Union are showing limited appetite for digital currencies like bitcoin, notwithstanding the high level of public interest.”

Tradition Vs. Crypto

Draghi also expressed fear regarding bitcoin futures and newer methods of crypto-trading, saying that they open doors to future problems.

His statements are coming when most of Europe faces the alleged prospect of inflation. The euro, while currently holding steady, has induced relatively modest losses against entities like the U.S. dollar. While the continent isn’t in panic mode just yet, Draghi warned of an upcoming time when interest rates were likely to increase, and monetary policies could become more robust following the ECB having purchased approximately $37 billion in new euros.

“New headwinds have arisen from the recent volatility in the exchange rate, whose implications for the medium-term outlook for price stability require close monitoring,” he commented.

Old Plans Suddenly Look Bleak

At one point, bitcoin and digital currencies could have offered viable solutions to Europe’s problems. Last year, countries like Greece were launching plans to make bitcoin a national currency to potentially assist in the nation’s growing debt crisis, though it’s unclear if these solutions could continue to hold merit granted virtual currencies remain on a downward slope.

Draghi has also rejected plans from neighboring countries like Estonia seeking to implement national digital currencies to assist in economic growth and compete with the syndicated euro.

Is Europe’s worry likely to make cryptocurrency drop even further? Post your comments below.

Images via ECB, Wikipedia

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