Cryptos a threat to stability according to the ECB

Cryptocurrencies pose a threat to financial stability. That is the conclusion of the European Central Bank (ECB), in a report on cryptocurrencies. Christine Lagarde, president of the ECB, said in a TV program that cryptocurrencies are worth nothing because they are based on nothing.

They were, let me say, remarkable statements. First, that the crypto coins are worth nothing. You can think that monetary phenomenon is great or nothing, but whether and how much something is worth, we have the market for that. The beauty of the market is that all kinds of people come together there to sell and buy things. Cryptocurrencies have a price and are therefore worth something in the eyes of the market. How unworldly do you have to be to simply say that the value is nothing and therefore in fact say that the market is wrong!?

Eroded by skyrocketing inflation
Cryptocurrencies are worth nothing, according to Lagarde, because they are based on nothing. Correct. This also applies to fiat money, such as the euro. Does our money have no value? Of course it is. Though its value is being eroded by the month due to skyrocketing inflation. Okay, okay, the foundation of fiat money is confidence in the ECB, but that's kind of waning (talking about the value of something) due to the bank's own policy. The security anchor of the euro - which Lagarde is talking about - is the ECB, but that anchor is in danger of loosening.

Why? Because the bank, with about 8% inflation in the eurozone, which is also rising and just about everything and everyone expects the currency depreciation to be too high in the coming years, is still arguing whether the interest rate should go up and if so, when and how soon. If it's up to Lagarde, in July, maybe, and then from -0,5% to -0,25%, to eventually, possibly, go all the way to 0 in September. wow! This effectively tackles inflation. This is of course meant to be sarcastic. To tackle inflation, considerably more is needed on the interest rate front. If something poses a threat to not only financial stability, but economic, political and social as well, then I believe it is the ECB's policy rather than cryptocurrencies.

Regulate crypto trading
Lagarde also said that cryptocurrency trading should be regulated. Hear hear! I agree with her. Cryptocurrencies have since grown into a decent market and many investors have crypto in their portfolio. Then we have to treat that part of the market just like the rest of the market and that means regulation and supervision. Speaking of supervision, do you know what I think needs strict supervision? The ECB.

Edin Mujagic

Edin Mujagić is an economist and manager at Beleggingsfonds Hoofbosch. He focuses on global central banks, and in his blogs he writes mainly about developments in interest rates and inflation. He has also written several books.

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.