While negotiations are expected mid-week in Brussels, the ECB has called for global regulation of the sector.
The European Central Bank (ECB) on Monday called for regulation of crypto-assets, the momentum of which is such that they are now reaching a market size larger than that of sub-prime mortgages that sparked the last major financial crisis.
“We need to make a globally coordinated effort to bring crypto-assets into the scope of regulation,” ECB executive board member Fabio Panetta said in a speech in New York.
This call echoes that of the Bank of England (BoE), which estimated in March that the regulation of cryptocurrencies should be increased to prevent the growth of this sector from creating systemic risk.
The growing demand for digital assets and instant payments has given rise to an ecosystem with “miners” creating cryptocurrencies and a myriad of intermediaries.
Around bitcoin, the most famous cryptocurrency, the size of the crypto-asset market “is now larger than the sub-prime mortgage market was” when the latter “triggered the global financial crisis (of 2008) with a value of 1,300 billion dollars”, underlined Mr. Panetta.
“anarchic risk taking”
These assets “generate instability and insecurity”, criticized the Italian banker. This is why “we must ensure that (these assets) are subject to standards consistent with those applied to the financial system,” argued Mr. Panetta.
For this, regulators on the planet must “move faster” to ensure that crypto-assets “do not trigger an anarchic risk-taking frenzy”, synonymous with a “bubble”.
But regulating is not enough: “if the official sector – public authorities and intermediaries – does not satisfy” the strong demand for crypto, “others will intervene”, warned Mr. Panetta.
He therefore pleaded for central banks to engage in digital innovation, like the ECB which launched its digital euro project. This innovation should allow citizens to use the single currency to make payments anywhere in the euro area.