European Central Bank Report Claims Crypto-Assets Pose Financial Risks

A financial report published today by the European Central Bank (ECB) claims that cryptocurrency assets pose significant financial risks. The report written by ECB President Christine Lagarde focused on the future of money within the European Union.

Lagarde highlighted the historical value of money from early times when physical commodities backed money to the current fiat monetary system. She acknowledged that the current technological innovation means that the financial landscape is moving towards digitalization.

This trend was further accelerated by the COVID-19 pandemic, which resulted in a surge of online payments and contactless payments. The Eurozone witnessed a dramatic increase in non-cash payments by 8.1% to 98 billion, and the ECB plans to improve the existing digital payments infrastructure. The digital Euro was proposed as a perfect solution that would kickstart the region’s switch towards digitized payments.

According to the report, the digital euro would ensure a risk-free and trusted payment method for citizens and businesses within the European Union.  It is also expected to complement the current cash system providing customers with a similar experience and accessibility to merchants within the region.

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Crypto-Assets Pose Serious Financial Risks 

Speaking on crypto-assets, Lagarde admitted that blockchain technology was an innovation with new potentials and risks. At the same time, she praised the fact that blockchain technology has solved the integrity of records and double-spending.  Lagarde believes that the main risk lies in the flawed concept of its decentralized nature.

This, according to the ECB chief, means that crypto-assets cannot maintain a stable value making it highly volatile and speculative.  This is particularly true regarding popular cryptocurrencies like Bitcoin and Ethereum, whose prices fluctuate wildly. The introduction of stablecoins like Tether (USDT) has largely eliminated these problems since they are tied to fiat currencies.

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However, the report states that the global adoption of stablecoins would threaten financial stability and monetary sovereignty within the region. Lagarde also hinted that this would affect banks in the region as customers would shift their deposits towards stablecoins.  The report has received mixed reactions from the crypto community. Many believe that the ECB needs to be opened towards cryptocurrencies as global adoption continues to grow exponentially in 2020.