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ECB Members Push for Tighter Regulation of Cryptocurrencies
2022/04/26By:
The European Central Bank (ECB) has been pushing for stricter regulation of the cryptocurrency ecosystem, especially the stablecoins. On April 25th, the European Central Bank (ECB) was pushed to implement more strict regulation of monetary instability in the form of “encryption at the level of the ECB”.
Speaking at Columbia University, Panetta mentioned that the cryptocurrency market has achieved accelerated growth, valued at $1.3 trillion, indicating that it is now larger than any high-risk market at the beginning of the global financial crisis in 2008.
The ECB Thinks Crypto Market is a Foam Waiting to Burst
Panetta said all these booms were based on speculation and a commitment to high and rapid returns, “taking advantage of regulatory loopholes to leave investors unprotected”.
“We must not repeat the same mistakes and wait for the foam to burst before we realize how widespread the risk of encrypted money has become in the financial system.”
Panetta acknowledged that although crypto assets are not just speculative and high-risk investments. But he still believes that they will affect national policies and the world’s financial stability.
Panetta also explained that stabilizing the currency poses a risk to countries – a position that the European Central Bank has endorsed – because the person responsible for coining tokens cannot guarantee “redemption at face value at any time” or access to “permanent facilities” provided by the central bank. He added that one third of the stable coins introduced in recent years had not survived.
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The Fluctuating Cryptocurrency Cannot Achieve its Purpose
Panetta believes that volatility and lack of appropriate support make encrypted assets unable to achieve their purpose, that is, to promote payment or become a better version of traditional currency. Panetta pointed out that bitcoin had a 60% decline after reaching $68000, which was higher than that of gold and four times higher than that of American stocks.
“[cryptocurrency] is too volatile to perform the three functions of currency: medium of exchange, value storage and unit of account.”
Due to the accelerated adoption of the global cryptocurrency ecosystem, Panetta proposed to strengthen control over the way of global regulation. He said he was concerned that even countries that banned cryptocurrencies could not ensure that their tasks were 100% effective.
“We need globally coordinated regulatory action to address issues such as the use of encrypted assets in cross-border illegal activities or their impact on the environment. Regulation should balance risks and benefits so as not to stifle innovations that may stimulate payment efficiency and the wider use of these technologies.”
Panetta highlighted four relevant points to achieve better control over encrypted assets.
- They are required by the same standards as the rest of the financial system.
- They are fully taxed because the current tax treatment is the lowest.
- Strengthen public disclosure.
- Introduce strict transparency requirements and standards for professional operators to follow.
Therefore, the new regulation is not to stifle innovation, but to protect people’s money and savings. But it will also greatly ensure that the central bank does not lose economic control over the years.
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