The European Central Bank has recently released a report on cryptocurrencies, which concludes with the notion that cryptocurrencies do not have any implication on monetary policy.
However, this comes as a surprise, given the strong contention and anxiety among policymakers and central banks in terms of cryptocurrencies’ disruptive potential in the financial system. The report has attempted to write off the utility of cryptocurrencies for the most part.
Crypto is Not Money
The report of the European Central Bank has rejected the claims that hail cryptocurrencies as the replacement of fiat. They state this is because they do not fulfill all the purposes which are served by money. Moreover, the report has mentioned that as very few merchants allow the use of cryptocurrencies for making purchases, they fail to make an impact on the real economy, like in terms of price setting. It is for this reason they have stated that it should not have any significant effect on the monetary policy.
However, in reality, many huge companies are adopting digital tokens in various forms, like Facebook’s development of its own crypto, Starbucks’ stake in Bakkt, or JPMorgan’s plans of developing own crypto assets.
The report goes on to argue that as a form of security, crypto assets cannot be a part of the EU Financial market infrastructures, with clear benefits for the EU, under the existing regulatory framework.
Central Bank Digital Currency
Central Bank Digital Currencies, according to the report, should be analyzed separately from other forms of cryptocurrencies. The central banks issuing digital forms of currencies to meet the changing needs of the increasingly digitized economy is a considerable option, and they should serve as safe and non-volatile assets for the users, as per the report. Finally, the report concludes that close monitoring of the sector is necessary, as the linkages with the broader financial industry may increase significantly in the future.
