European Central Bank (ECB) President Christine Lagarde recently emphasized that cryptocurrencies are not actually currencies, but “highly speculative assets.”
“Cryptos are not currencies, full stop,” Lagarde stressed. “Cryptos are highly speculative assets that claim their fame as currency, possibly, but they’re not. They are not.” Although not a currency, she did say that they were “highly speculative, suspicious occasionally, and high intensity in terms of energy consumption.
Stablecoins and CBDCs
Despite her disdain for cryptocurrencies, Lagarde is more open to stablecoins, as they could facilitate central bank digital currencies (CBDCs). However, as they continue to spread, she believes they and the companies issuing them need more regulation.
“You have those stablecoins that are beginning to proliferate, which some big techs are trying to promote and push along the way, which are a different animal and need to be regulated, where there has to be oversight that corresponds to the business that they’re actually conducting, irrespective of how they name themselves,” Lagarde said.
To this end, the ECB under Lagarde launched its digital euro projects this year in response to private-sector digital currencies. “I was keen to push the issue, the CBDC issue, on our agenda because I believe that we have to stand ready for that,” she said. Despite the push, the ECB President previously said that a digital Euro could take up to four years to produce. She remarked upon being “prompted by a demand of customers to produce something that will make the central bank and central bank digital currencies fit for the century we are in.”
The Bank of International Settlements (BIS) shares Lagarde’s perspective about the need for CBDCs to stand up to the rise in privately issued cryptocurrencies. It also believes that without CBDCs, digital money would become increasingly dominated by big tech firms. This could potentially happen primarily by them leveraging their enormous social media user base.
In its latest Annual Economic Report, released earlier this summer, BIS dedicated a chapter to CBDCs. While applauding advancement in the payment systems, the report said that their benefits would depend on their structure and governance. On the one hand, the technology could enable a “virtuous cycle” of broader access, lower costs, as well as better services.
However, the report notes the potential for a “vicious cycle” of data silos, market power, and anti-competitive practices. “CBDCs and open platforms are the most conducive to a virtuous circle,” the report notes.
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