Showing posts with label European Central Bank (ECB). Show all posts
Showing posts with label European Central Bank (ECB). Show all posts

November 29, 2017

Investors ‘risk’ buying Bitcoin at high prices: ECB Vice President

By Rebecca Campbell - November 29, 2017 (

The vice president of the European Central Bank (ECB) has said that investors are taking a ‘risk’ by buying bitcoin at its high price.

Speaking to CNBC on Wednesday, Vitor Constancio, said:

"It’s a very particular asset, it’s a speculative asset by definition looking to the developments in its price. Investors are taking that risk of buying at such high prices".

Constancio’s comments come at a time when the digital currency is experiencing a surge in value. Earlier today, it was reported that bitcoin had risen to over $11,000 along with a rise in various alt-coin prices. To date, the cryptocurrency has increased by over 1,000 percent, a colossal undertaking considering it was trading at $1,000 at the beginning of the year, and has overcome numerous obstacles.

Some, though, are still expecting great things from bitcoin. Mike Novogratz, a billionaire investor and hedge fund manager, believes that it could ‘easily’ rise to $40,000 by the end of 2018. However, at a recent conference in New York, he stated that it wouldn’t be easy getting there, adding:

"There will be wild crashes in it because you’re going to get to levels so far ahead of where the technology’s at".

Central banks, though, have continually been reluctant to embrace the market. The ECB vice president said earlier this month that digital currencies will never replace the fiat system, adding that they were a ‘misnomer‘ merely used as a speculative asset.

At the time, he stated:

"The so-called private ‘cryptocurrencies’ can never prevail as general money substitutes".

Mario Draghi, the ECB President, has also spoken about the digital currency market, claiming that they aren’t ‘mature‘ enough for the central bank to consider regulating them. More recently, Draghi stated that they pose little threat to the central bank-dependent financial system, despite the rise in the cryptocurrency market.

Not only that, but Constancio believes that central banks don’t need to take the digital currency market seriously. During the interview, he said:

"… in the sense that we don’t have responsibility or even instruments that point to particular prices of particular assets, that is certainly not the role of central banks".

Yet, regardless of the fact that the crypto market, in particular bitcoin, have been criticised by various financial CEOs, it looks as though it has its foot firmly in the door and isn’t going away anytime soon. Not only that, but we may soon be reading headlines that the combined crypto market has become more valuable than JPMorgans.

Featured image from Shutterstock.

November 14, 2017

Can Cryptocurrencies drive out Money?

By Farzana Begum - November 14, 2017 (

According to Reuters, Victor Constancio, the Vice President of the European Central Bank, said on November 9 cryptocurrencies will not serve to be an alternative substitute for money, and central banks are unlikely to create digital currencies independently without placing limitations.

Central banks worldwide have been forced to monitor the price of bitcoin which has soared, with some predicting a crash. Thus precautions are necessary to avoid the likely potential threat to stability.

Constanico said in Rome:

“Their designation is a misnomer as they are not a currency but just a commodity used as a speculative asset and as a restricted medium of exchange in very special circumstances, comprising criminal activities or failed states with collapsed institutions.”

The ECB does not view cryptocurrencies as a monetary threat since there are consumer protection concerns and the scalability and adoption digital currencies are rather small at present.

Constancio expressed his concerns about the disorder that supporting cryptocurrencies may create for the banking industry as a whole, which drives the argument for why cryptocurrencies are very unlikely to become mainstream.

“The use of the blockchain by central banks to create digital currency open to all citizens without limits would be really disruptive,” he said. “This would be a radical political choice that could end banking as we know it and is therefore unlikely to happen.”

Since the idea behind the blockchain is a decentralized platform to create independence without the need for intermediaries such as banks, they would be driven out of the market if such technological advances were to lead to widespread adoption.

According to the Bank of England’s Quarterly bulletin from 2014, the widespread usage and adoption of Bitcoin involves potential risks to monetary instability and the world’s oldest central bank recognizes that they can potentially become obsolete.
The central bank recognizes their lack of control over the current users of cryptocurrencies and their ability to influence the interest rate and the money supply of the ‘crypto economy,’ therefore, weakening the monetary transmission mechanism. The central bank has no power and is unable impact demand for this particular group of people, and is more exaggerated the bigger this group becomes. For example, since the Bank of England or any other central bank cannot control the supply or interest rate of cryptocurrencies, they have no tools to influence demand traditionally to stabilize short-term economic fluctuations:

“Potential risks to monetary stability would only be likely to emerge once digital currencies had achieved substantial usage across the economy. If a subset of people transacted exclusively in a digital currency, then the Bank’s ability to influence demand for this group may potentially be impaired.”

It could also be possible that widespread adoption of bitcoin would prompt the central banks to engage in open market purchases, similar to how they influence the prices of stocks and other financial assets, in an attempt to affect demand via the wealth effect.

November 10, 2017

Cryptocurrencies will never replace “General Money” - European Central Bank VP

By Miguel Gomez - November 10, 2017 (

ECB Vice President Vítor Constâncio believes that cryptocurrencies are a "misnomer" and that they will "never prevail as general money substitutes".

The European Central Bank was represented at the Financial Regulatory Outlook Conference in Rome yesterday, with its Vice President, Vítor Constâncio, speaking briefly about fintech and taking not-so-subtle jabs at the idea of cryptocurrencies.

“In the view of its enthusiasts, fintech will be radically disruptive, breaking industry boundaries and upending financial intermediation by eliminating traditional banks. There is a lot of exaggeration in this view. The footprint of new fintech firms is still rather small,” he said during his speech.

Despite having said that fintech doesn’t necessarily have a substantial impact, he went on to add that blockchains, machine learning, artificial intelligence, and decision algorithms “are currently being used by incumbent banks and asset managers” that cannot be “swarmed by nimble small fintech firms.”

“Nevertheless, some usage can be significantly transformative,” Constâncio added.

After saying that artificial intelligence and machine learning in asset management could present risks and would require more concentration by regulators, he segued almost immediately into the subject of cryptocurrencies:

“The so-called private 'crypto-currencies' can never prevail as general money substitutes. Their designation is a misnomer as they are not a currency but just a commodity used as a speculative asset and as a restricted medium of exchange in very special circumstances, comprising criminal activities or failed States with collapsed institutions,” he said.

From Constâncio’s point of  view, if cryptocurrencies (hypothetically) were to replace fiat money, they’d “end banking as we know it.”

It’s not the first time—nor do we expect this to be the last time—that a member of the European Central Bank has condemned cryptocurrencies.

Last month, Yves Mersch—an executive board member of the ECB—said that it is unclear who issues Bitcoin, seeming to miss the point that the cryptocurrencies do not have an issuer at all.

The statement itself demonstrates that some people in the financial world may find it difficult to understand how distributed ledgers can build currencies that self-perpetuate without requiring any central authority to control their supply.

Looking at all the commentary that members of the bank have made, the ECB has made one thing clear: It really isn’t very happy about the crypto world.