Comparing the rise of crypto assets to the gold rush, a top executive at the European Central Bank has urged governments to take action to prevent “a lawless frenzy of risk-taking.” Speaking in the U.S., the ECB official called for a global regulatory clampdown on cryptocurrencies and stepping up efforts to issue central bank digital currencies.
A century and half after Americans pushed westward to seek fortune, a growing distrust of banks and technological innovation have led to a new, digital gold rush beyond state control, Fabio Panetta, member of the Executive Board of the European Central Bank (ECB), said in a recent address at Columbia University in New York.
In his speech, which the eurozone’s monetary authority published this week under the title “For a few cryptos more: the Wild West of crypto finance,” the high-ranking ECB official remarked that the cryptocurrency market is now larger than the $1.3 trillion sub-prime mortgage market in 2008, which triggered the last global financial crisis. He likened its dynamics to a Ponzi scheme and stated:
Crypto evangelists promise heaven on earth, using an illusory narrative of ever-rising crypto asset prices to maintain inflows and thus the momentum fueling the crypto bubble. But appearances are deceptive. Satoshi Nakamoto’s dream of creating trustworthy money remains just that – a dream.
Panetta went on to allege that cryptocurrency transfers can take hours to process and highlighted the wild fluctuation in the prices of digital coins like bitcoin and ether. He also pointed out that the “supposedly anonymous transactions leave an immutable trail that can be traced.”
The majority of crypto holders, the banker also noted, rely on intermediaries which is contrary to the philosophy of decentralized finance, as he put it. “Crypto assets are bringing about instability and insecurity – the exact opposite of what they promised. They are creating a new Wild West,” Fabio Panetta added.
Fabio Panetta is convinced that as speculative assets, cryptocurrencies can cause “major damage to society” when “this house of cards collapses, leaving people buried under their losses.” He warned authorities around the world they should not repeat previous mistakes by waiting for the bubble to burst, before they realize “how pervasive crypto risk has become in the financial system.”
“We need to make coordinated efforts at the global level to bring crypto assets into the regulatory purview,” the ECB official insisted. He also suggested that regulators should ensure that cryptocurrencies are subject to standards that are similar to those implemented regarding the traditional financial system. He elaborated:
In doing so, we will have to deal with complex trade-offs, balancing the goals of promoting innovation, preserving financial stability and ensuring consumer protection. We should make faster progress if we want to ensure that crypto assets do not trigger a lawless frenzy of risk-taking.
The executive stressed, however, this wouldn’t be enough as market growth in the crypto space has revealed an increasing demand for digital assets and instant payments. Public authorities should satisfy it with central banks engaging in digital innovation by upgrading wholesale financial infrastructures and working to issue central bank digital currencies (CBDCs).
Panetta maintained that the European Central Bank is leading in these areas. “We are focusing on a digital euro, in order to allow citizens to use sovereign money to make payments anywhere in the euro area, while protecting its role as an anchor for the payment and monetary system,” said the ECB board member who oversees the advance of the digital currency project.
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