Romanian Central Banker: Cryptocurrencies Cannot Replace State Currencies, Europe Must Strengthen Capital Markets

Daniel Daianu, a member of the Romanian National Bank (BNR)’s Administration Council, told attendees at a conference this week that cryptocurrencies are in fact, “financial assets” that cannot be used as central bank currencies, Business Review reports:

“In my opinion, these are financial assets, not cryptocurrencies, and they won’t be able to fulfil the basic roles of currency.”

Regulators like lauded economist Augustin Carstens, for instance, have argued that central banks should steer clear of commercial money markets and lending- and vice versa.

Carstens and others have also argued that central bank currencies must be issued flexibly.

Cryptocurrencies, which are often programmed to have limited supplies, cannot, therefore, be made to respond to appropriately to a full range of market and political events.

With this reasoning, Daianu seemed to concur:

“Currency is always backed by a last-resort lender. In markets, the state is the only possible last-resort lender. When the banking system was saved, it wasn’t (saved by) crypto banks…Central banks intervened by issuing base currency, which was followed by non-conventional measures. Cryptocurrencies will never be able to substitute the currency issued by a central bank.”

Daianu did leave the door open for format changes to central bank money, and acknowledged the potential virtues of technology that “disintermediates” (automates and synchronizes) capital flows:

“What can happen is for central banks to have a digital currency, but that will also be issued by the bank, and commercial banks will receive digital currency that can multiply. I do agree, however, that new technologies lead to disintermediation and this feature of decentralization shows us the merits of networks.”

That said, like Carstens, Daianu was careful to emphasize that market segments and roles should remain distinct, with each relegated to support the economy its own way:

“We must be aware of the difference between institutions and the roles they have. It is important for these roles not to disappear. Of course, technologies ensure business models and they have always done so. The segmentation of markets has been done for decades, and fintech helps business.”

Daianu also acknowledged the need for better capital flows in Europe:

“The issue of capital markets is a European one. In the US, capital markets finance three quarters of the economy, while in Europe they have a much lower stake, and there are major differences between countries. 80 percent of transactions with derivatives go through the London market and these things aren’t related to the concept of Brexit; they are very practical. You can see how difficult it is to unite the capital markets.”

Daianu also admitted that companies in Europe face frustrating blocks when it comes to raising funds from the public:

“Locally, small companies can’t list elsewhere, but large companies can do so. I think that the Financial Supervision Authority must continue to fight for the development of local capital market. It’s not an easy thing to do.”

Under current circumstances, said Daianu, European companies might prefer to avoid this type of raise:

“We also need companies to want to list. We have to help our companies even though many of them prefer bank loans, and we must accept this as well. Let’s not claim that stock exchange financing is beneficial for companies under any circumstance, because that is not true.”

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