Le cryptocurrencies are “a new Wild West. They don't just represent high-risk speculative investments, but also constitute a real threat to financial stability". She said it Fabio Panetta, member of the ECB Executive Committee, in a speech given Monday night at Columbia University in New York.
Cryptocurrencies are worth more than subprime mortgages in 2008
Panetta added that the overall value of cryptocurrencies exceeds that, equal to 1.300 billion dollars, that sub-prime mortgages had achieved when they triggered the global financial crisis. And the dynamics of these two segments are strikingly similar. In addition to the risk that the cryptocurrency bubble could explode without warning, Fabio Panetta pointed out another not insignificant problem, namely the environmental issue: the exchange of these assets, increased with the war in Ukraine, absorbs 0,36% of the electricity consumption worldwide. That is, as much as countries like Belgium or Chile.
“We need international regulation”
According to Panetta, to prevent cryptocurrencies from jeopardizing financial stability as happened with subprime mortgages in the 2008 crisis, "we must engage in international cooperation in order to bring crypto-assets back within the regulatory perimeter and to subject them to standards in line with those prevailing in the financial system”. Standards not currently applied to cryptocurrencies which can thus lend themselves to laundering or financing illegal or terrorist activities.
The key is digital innovation
For this to be possible, “an appropriate balance is needed between different objectives – continued Panetta – such as promoting innovation, preserving financial stability, ensuring consumer protection. If we want avoid uncontrolled and frenetic risk-taking in the crypto-asset sector, we must proceed expeditiously. But we cannot limit ourselves to this. The expansion of crypto-asset markets reveals a growing demand for digital assets and instant payments by citizens. If the official sector, public authorities and intermediaries fail to meet this demand, others will”.
Central banks, therefore, must make a full effort todigital innovation, modernizing the infrastructures used for wholesale payments, introducing retail payment systems operating in real time and preparing for the issuance of digital money, all fronts – concluded Panetta – in which the ECB is at the forefront.
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