Christine Lagarde, President of the ECB (European Central Bank), sees positive points with the arrival of cryptocurrencies like Libra.
She gave her opinion while answering various questions about the economy and especially cryptocurrencies like Bitcoin or Libra precisely.
Her answers are interesting to see how high European financial institutions see the arrival of stable coins like Libra.
She highlights the fact that there would be only a small percentage of the population concerned by cryptocurrency and Bitcoin.
And the same about financial capitalization in crypto compared to the market capitalization of major international companies like Google or Facebook.
Concerning the arrival of stable cryptocurrencies like Libra, Facebook cryptocurrency, she sees some positive aspects to help and facilitate cross-border payments in particular, but she also indicates that these cryptocurrencies could also “present risks for monetary policy, stability and the proper functioning and public confidence in the global payment system.”
You can read the whole document on the ECB website.
Here are the paragraphs where Christine Lagarde answers the questions about cryptocurrency like Bitcoin or Libra.
What are the risks to monetary stability related to the development of virtual currenciessuch as Bitcoin?
Which role do you think the ECB should play in addressing virtualcurrencies?
What are your views on Facebook’s plans for new digital currency Libra?
What would you consider a proper regulatory framework for virtual currencies?
“Thus far, existing virtual currencies such as bitcoin, also referred to as crypto assets, are deemed to have had no tangible implications for monetary policy and financial stability.
This assessment reflects the small size of crypto-asset markets relative to the financial system andtheir limited interconnectedness with the regulated financial sector and the economy. In relativeterms, the total market capitalisation of crypto assets globally currently stands at around 7% of the market capitalisation of the so-called “FAANG” (Facebook, Apple, Amazon, Netflix andGoogle), or 2% of euro area GDP and 3%/2% of M1/M3 respectively.
This may change as the market continues to evolve and as crypto assets themselves evolve.
The ECB and central banks in general clearly should closely monitor and assess developments and contribute to theongoing international work on policy responses.
The emerging stablecoin projects, of which Facebook’s Libra initiative is an example, are a private-sector attempt to improve existing financial services and can bring benefits with respectto efficiency of cross-border payments and for financial inclusion.
Such projects, and inparticular their underlying blockchain or distributed ledger technology, may help bring convenience to the users and opportunities from an efficiency and safety perspective, in particular in countries where there are currently no efficient market infrastructure services in place.
While crypto assets such as stablecoins and the blockchain technology on which they are based can help reap opportunities in particular in the field of cross-border payments, one has to bear in mind that their wide-spread usage could also pose risks to monetary policy, financial stability and the smooth functioning of and public trust in the global payment system.
I am looking forward to the final report of the G7 Ministers and Governors working group on stablecoins, to which the IMF, as a member, is also contributing.
They will carry out an analysis of benefits and risks of stablecoins in coordination with the G20, the Financial Stability Board and other relevant standard setting bodies.
As for the regulatory framework, clearly a balance needs to be struck between ensuring that these activities do not give rise to risks to financial stability while allowing for financial innovation.
Lessons from existing regulation include that if the activity is inherently the same, and the risk is the same, then the regulation should be same as well.
This would also reduce the risk of regulatory arbitrage where innovation does not lead to new types of services, but merely attempts to circumvent regulation.
When considering regulatory approaches to complex stablecoin initiatives, it is essential to look beyond individual components and assess the entire arrangement, what some might call the “ecosystem.”
Christine Lagarde’s vision speaking for the ECB is therefore rather positive.
The institutions see that cryptocurrencies are getting more and more important, and that it will be necessary to adapt to it.
If there are positive aspects, her conclusion is to also have to assess the risks of disruption in the international financial system that cryptocurrencies such as Libra could provoke.
