Cryptocurrencies Need To Be More Closely Regulated, Says European Central Bank Executive

News, Regulation | February 9, 2018 By:

Yves Mersch, European Central Bank (ECB) executive board director, said that cryptocurrencies and the companies that trade them need to be more closely regulated.

In an interview with Bloomberg, Mersch said that regulators had previously been willing to largely ignore cryptocurrencies, but since the hype accelerated at the end of last year, it has moved higher up on the agenda.

“Any virtual currency business of credit institutions needs to be rigorously supervised to ensure that risks emerging from such activities are contained,” said Mersch. “Furthermore, given the risks posed by leverage, credit institutions should not accept virtual currencies as collateral (by banks).”

Mersch said that “greed” has driven market participants to link cryptocurrencies to the established financial system and urged policy makers not to stand by.

“Amid the growing risks of contagion and contamination of the existing financial system, regional regulatory solutions have to be explored while we await an outcome from G-20 discussions,” he said.

Recently, Bank for International Settlements chief Agustín Carstens condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster.” Mersch said the ECB is fully in line with Carstens’ views and that they have similar worries.

“The question is not so much that these virtual currencies are already at a level that would cause huge disruption in the real economy, but we are currently more concerned about the social and psychological effect they seem to have,” he said.

When asked about the possibility of digital euro, Mersch said, “I could imagine a digital representation of cash, meaning a digital issuance that would replicate the features of cash, not a new digital currency disrupting bank intermediation, in order not to rock the boat of our whole economy and put into question the functioning of a two-tier banking system.”