As part of their ongoing “Occasional Paper Series,” the European Central Bank (ECB) has published a missive entitled, Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures.” The paper was produced by the ECB Crypto-Assets Task Force.
The ECB has monitored digital assets such as cryptocurrency and other tokens for quite some now. The Task Force was established to assess whether, or not, crypto is impacting monetary policy or engendering any systemic risk. The paper states that “in the current regulatory framework, crypto-assets can hardly enter EU financial market infrastructures (FMIs).” Additionally:
“Even if crypto-assets-based products were to be cleared by central counterparties (CCPs), these would need to be authorised and to satisfy existing regulatory requirements, albeit at additional costs and with no clear benefits to EU CCPs.”
The Task Force takes semantics to an extreme in defining crypto-assets.
“The term “crypto-asset” denotes any asset recorded in digital form that is not and does not represent either a financial claim on, or a financial liability of, any natural or legal person, and which does not embody a proprietary right against an entity. Yet, a crypto-asset is considered valuable by its users (an asset) as an investment and/or means of exchange, whereby controls to supply and the agreement over validity of transfers in crypto-assets are not enforced by an accountable party but are induced by the use of cryptographic tools.”
The focus of the Task Force’s definition is “the lack of an underlying claim/liability. ”
The overall market for crypto remains quite small relative to more traditional financial assets. Due to the newness of digital assets this sector of finance has garnered considerable attention within the media thus creating a heightened degree of awareness. But as other governmental entities have determined, the ECB Task Force sees few risks from digital assets for the time being:
The Task Force states:
“At present, crypto-assets’ implications for and/or risks to the financial stability of the euro area, monetary policy, and payments and market infrastructures are limited or manageable. This assessment should not be extended to other areas outside of the scope of this report (e.g. money laundering, consumer protection) where risks may have already materialised, and should not preclude continuous monitoring or the analysis of future implications of crypto-assets for the stability and efficiency of the EU financial systems and FMIs.”
The document does include an “Annex” that addresses the topic of a Central Bank Digital Currency or CBDC by the European Union. The authors believe there may be both benefits and costs to a CBDC and current conditions do not warrant the issuance of a central bank crypto. Currently, there is a project to research the concept under the Eurochain Initiative.
The paper is an interesting read if you can get past the authors’ definition of crypto.
Occasional Paper Series Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures