ECB Director Declares Opposition to Cryptocurrencies

ECB’s chief, Christine Lagarde, reiterates her stand that cryptocurrencies are not currencies, and she may be right. Or is it self-preservation?

By
Chung Yee
on
September 18, 2021
Category:
Blockchain News

Defining Currencies

The European Central Bank (ECB) President, Christine Lagarde, expressed her opinions on cryptocurrencies by labeling them highly speculative, suspicious, and energy-intensive assets. 

Lagarde, who spoke on David Rubenstein’s show presented by Bloomberg, has been vocal in her criticism against cryptocurrencies and has linked criminal activities such as money laundering to crypto assets in the past. 

‘Cryptos are not currencies. Full stop. Cryptos are highly speculative assets that claim their fame as currency, possibly, but they are not. They are not,’ Lagarde said in the interview.

El Salvador, through a piece of legislation, has recognized bitcoin as its national currency. Currency is defined as a mode of exchange that is commonly used as payment for goods and services. A monetary policy usually accompanies a currency by providing the tools to central banks to have centralized control over the supply of money and keep their economy afloat. 

Source: Crypto-assets can never be labeled as ‘currency’ unless there is legislative adoption.

Understanding the Fuss About Labels

Currencies are often issued by central authorities, such as the Federal Reserve in the United States or the ECB in the European Union. And as the leader of the ECB, Lagarde is right. Unless bitcoin has all the features to be recognized as a currency, it is not a currency. But can it play the role of a currency? El Salvador has shown the world that it can.

Cryptocurrencies operate on decentralized networks. A decentralized network like bitcoin destabilizes central banks’ monopoly over money creation. It is disruptive because it democratizes finance, and economic institutions like the ECB naturally oppose a threat that renders their role obsolete. 

It is not surprising that traditional financial institutions and regulators are preoccupied with labeling. Cryptocurrencies are disruptive mechanisms that shake existing financial and economic models. Individuals that operate within a financial hierarchy have to maintain dominance and control through centralization. For example, sovereign nations enforce trade embargoes and sanctions with currencies. In other words, currencies are a tool for geopolitics. 

The EURO (€) ranks second after the US Dollar as the most traded currency in the world. Therefore, states with a vested interest in maintaining the integrity of their currency see cryptocurrencies as a threat. But this threat cannot be openly admitted, hence the need to explore a different narrative of delegitimization. 

Unfair Treatment 

Lagarde, in her interview, labeled cryptocurrencies as speculative, suspicious, and high in energy consumption. Newer blockchains are based on proof-of-stake (PoS) protocols, which takes away the argument that they are energy-intensive. 

These common misconceptions were debunked in an article written by ARK Investment Management accompanied by credible data.

These facts have been circulating in the public realm, but that did not stop the negative narrative on cryptocurrencies from continuing. 


Source: Illicit activities are more prevalent on recognized currencies than on cryptocurrencies.

Opportunities for Some

Big economic powers such as the United States and the European Union are reluctant to change the status quo. Smaller economic countries such as Venezuela, El Salvador, Panama, and Brazil see cryptocurrencies as a solution to their financial woes. 

When Venezuela's economy failed, the people fell back on bitcoin to escape from inflation. Other nations like Singapore, a well-managed country, have crypto-friendly policies. Singapore, El Salvador, and Ukraine are fast becoming havens for developing crypto-based projects within a regulated space. 

Traditional banks such as DBS, the largest bank in Southeast Asia, are licensed to operate their own digital exchange. For example, its neighbor, Malaysia, has recently mooted the idea of encouraging foreign cryptocurrency holders to bring their assets into the local market.    

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance. His largest crypto holdings are Solana, Ethereum, and BNB Token.

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