The Governor of the Central Bank of Ireland has published a blog post that brings into focus the benefits and shortcomings of crypto technology. He also shared his views on the likelihood of a digital euro that will shift the “financial architecture” of European markets. The European Central Bank (ECB) has recently launched a two-year project to investigate the design and distribution of a potential new currency. Central Bank of Ireland Publishes Article on Crypto-Assets and Digital Euro On 29 July, Irish Central Bank Governor Gabriel Makhlouf released an article titled “Digital money” that discussed the importance of cryptocurrencies to policymakers and the introduction of the digital euro. Right off the bat, the governor talked about the potential for a central bank digital currency (CBDC) in the Euro region. He emphasized that central banks would like to ensure that any new means of payment would provide the same benefits as the Euro while decreasing cash transactions in favor of digital payments. He also indicated that Digital Euro is “very likely” to be introduced in the future and it’s not a matter of “if” but “how and when”. Makhlouf also turned his attention to the growing crypto market and the need for regulation in the sector. He proposed that cryptos should not be labeled as currencies since they don’t have the characteristics of money. “The “currency” label implies that the characteristics of money exist when in fact they don’t […] It’s (crypto) not a useful medium of exchange or a unit of the account given the limited number of businesses and individuals willing to use it for transactions,” he stated. Despite the overarching concerns around its transactions and ownership, crypto has certain benefits, according to Makhlouf. He thinks that the distributed ledger technology (DLT), in particular, holds promise because of its ability to reduce transmission costs by removing intermediaries from the financial system. However, given the state of things at present, Makhlouf thinks that the risks related to digital assets “far outweigh any benefits.” Systemic Risks Posed by Cryptos Need to be Addressed Towards the end of the article, Makhlouf delved into the need for differentiation between various types of cryptocurrencies. He mostly talked about two categories: cryptos without an asset backing or “anchor” and cryptos that offered fixed-rate conversion to fiat currencies such as the dollar and Euro aka stablecoins. Makhlouf believes that cryptocurrencies don’t pose a threat to financial stability at present due to their limited role for most people. Even so, there are issues related to consumer protection that must be addressed. He concludes the post by saying that policymakers must ensure that “innovation serves the public interest, by providing clear rules to the innovators while at the same time engaging with a wide range of stakeholders.”
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