European Central Bank Considers Regulating "Dangerous" Cryptocurrencies

ECB President Mario Draghi comments on the “dangerous and deeply dubious” nature of cryptocurrencies and hints towards upcoming regulations to govern

Just a bit over a week after ECB President, Mario Draghi, said that they do not have the power to prohibit or regulate digital currencies like Bitcoin, the bank is now entering discussions about doing exactly that.

A member of the European Central Bank’s Governing Council, Ewald Nowotny, spoke out against cryptocurrencies, calling the hype surrounding them “dangerous and deeply dubious”, when speaking to Trend Magazine in Austria.

It appears that the ECB may begin to pursue staunch regulations for ICOs, which follows a trend set by China’s ICO ban, Japan’s surveillance of crypto exchanges and regulations by other countries in the Asia-Pacific region.

Nowotny continued by stating that “Bitcoin is not a currency”, backing this reasoning with the fact that it is “highly speculative and volatile.” He has also said that the bank is considering placing regulatory restrictions aimed at the world’s largest cryptocurrency.

Before Draghi’s statements at the end of September, the central bank had rejected the initiative by Estonia to create Estcoin, a national cryptocurrency, earlier in the month. His reasoning behind the rejection was that member states in the Euro zone cannot create their own currencies. “The currency of the Eurozone is the Euro”, he said.

Although the ECB isn’t very keen on letting cryptocurrencies run amok unregulated through the Eurozone, it has previously experimented with the idea of using a blockchain-powered distributed ledger system for its internal payment systems.

In a joint press conference with the Bank of Japan, they said that the technology was still “too immature”, making it unsuitable to be a valid substitute for the current TARGET2 and BOJ-NET payment systems used by these banks. However, they did say that the tests they have done “provide reasons to be optimistic with respect to the capabilities of DLT within payment systems.” 

While one could only speculate on the kinds of regulations the ECB has in mind, the language of the statements coming from the financial institution implies that they might not go as far as banning ICOs entirely, as China did.

We may expect to see regulations similar to those implemented in other countries in the Asia-Pacific region, which are more focused on fraud prevention and ensuring parallel compliance with the financial regulations already in place for “traditional” currencies.