Digital currencies do not have any implications on monetary policy or factor into the real economy, noted the European Central Bank (ECB) in a report published in May. The ECB published the report titled “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures,” in order to study the potential impact of virtual currencies on monetary policy and economic developments.
According to the report, at the moment, virtual currencies do not fulfill the functions of money. Cryptocurrencies can impact economic developments only if they become a credible substitute for cash and transactions.
As per the bank, the prices of virtual assets are of a volatile nature. Hence, there are only a limited number of European merchants who are ready to purchase goods and services with virtual currencies. This, in turn, limits the deployment of cryptocurrencies.
However, the report notes that things can change with the development of stablecoins. As their value is pegged to physical assets, their price can become less volatile in the future.
Moreover, the bank believes that as the value of digital currencies is not protected by any specific institution, it hinders its use as a form of money. Due to the volatility of prices, digital assets cannot be utilized as a store of value, means of payment and unit of account.
Previously, Mario Draghi, the President of the European Bank claimed that cryptocurrencies will hardly affect the world economies in a macro way. He added that digital coins are not currencies, they are indeed just assets. A euro will always be a euro and ECB will back euro. On the other hand, nobody is backing cryptocurrencies, hence they are “very, very risky assets”, he noted.
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