The European Central Bank declared that presently Cryptocurrencies are not really a threat to the financial stability in the Eurozone.
In the latest report, which is entitled as “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures,” here EU checks the overall impact of cryptocurrencies on economic developments and monetary policy.
In the most recent paper on the subject, ECB mentioned that the combined value of Crypto assets is low relative to the financial system and "linkages" to the financial sector are still limited. Moreover, there are banks in the EU which don't have 'systematically relevant' holdings in the Crypto asset.
The ECB also mentioned that digital currencies don't perform the functions of money. Only some of the merchants presently enable buying of goods and services using Bitcoin, because the prices of cryptocurrencies are highly-volatile. Also, digital currencies do not have an actual impact on the real economy or on monetary policy.
The Central bank says:
“The high price volatility of crypto-assets, the absence of central bank backing and the limited acceptance among merchants prevent crypto-assets from being currently used as substitutes for cash and deposits, as well as making it very difficult for crypto-assets to fulfill the characteristics of a monetary asset in the near future.”
Later, the ECB states that the development of the stablecoin is dependent on the physical assets, fiat currencies, or it is stabilized by an algorithm. ECB states that Crypto can become less volatile if they are protected by central bank reserves. This might raise new problems to address, however: “Such warranty could result in additional demand for central bank reserves, which could have implications for monetary policy and its implementation.”
Presently, ECB will not help in issuing a central bank digital currency, however, it is open in exploration due to the evolving digital economy.
The central bank states, “In principle, a CBDC could be designed as a user-friendly risk-free asset that meets the public’s demand for an economy that is both digitalized and safe.”
Crypto-assets are not in the scope of current EU payment services regulation, it continues. Moreover, in the present regulatory management, crypto-assets "can hardly enter the EU financial market infrastructures (FMIs)."
The paper states:
“Crypto-assets cannot be used to conduct money settlements in systemically important FMIs. To the extent that they do not qualify as securities, central securities depositories (CSDs) cannot undertake the settlement of crypto-assets. Even if crypto-assets-based products were to be cleared by central counterparties (CCPs), these would need to be authorized and to satisfy existing regulatory requirements, albeit at additional costs and with no clear benefits to EU CCPs.”
From this, we can say that the risks or potential effect of the technology are restricted and/or manageable as per the present regulatory and oversight frameworks.
Last year in September, ECB president Mario Draghi stated that there is no real need to issue a digital version of euro. He earlier said that the financial institutions in the EU are not as excited about the digital currencies as the public.