ECB Board Member: Crypto Is ‘Contagion And Contamination’ Infecting The Global Financial System
Yves Mersch, Executive Board member of the European Central Bank (ECB), referred to cryptocurrencies as a risk of “contagion and contamination of the existing financial system” during an interview with 4 Technology on Feb. 8.
Both the traditional and crypto markets fell sharply at the beginning of this week, prompting responses from shaken financial institutions like the wave of banks banning credit cards for crypto purchases.
Mersch warned of the potential for crypto markets to begin more strongly influencing traditional markets as the two have become more interconnected:
“If you increasingly have bridges between the virtual world and the real world and then there is a collapse in this virtual world, it could drain liquidity from the real world. This then becomes a concern for the central bank.”
During the Bloomberg interview, Mersch recommended that regulatory options should be looked into even before the upcoming March G20 summit in Argentina, where crypto regulation is expected to be high on the agenda,
“For me, one obligation would already be to force the unregulated platforms to report transactions in a harmonized way to repositories so that we would have access to information -- also in order to create a better response.”
Mersch adds that ECB is also concerned about the “social and psychological effect” that cryptocurrencies “seem to have.”
On Feb. 6, general manager of the Bank of International Settlements (BIS) Augustín Carstens similarly voiced concerns about the increasing integration between cryptocurrencies and traditional finance. Carstens called Bitcoin a “Ponzi scheme” and warned of a “threat to financial stability” if cryptocurrencies became more connected to the global financial system.
Mersch told Bloomberg that the European Central Bank fully agrees with Carstens concern:
“You won’t be surprised to know that we at the ECB are fully in line with his views and we have similar worries, or similar endeavors we are working on.”
Just yesterday in an interview with CNBC, ECB’s Chair of the Supervisory Board Daniele Nouy said that future involvement of ECB-regulated banks in crypto regulation was “very very low,” and the crypto regulation for ECB itself was “not exactly very high on its to-do list.”