In a strongly worded speech at Columbia University, Fabio Panetta, a board member of the European Central Bank (ECB), slammed cryptocurrencies calling the sector the Wild West. He said an “illusory narrative” of ever-rising crypto prices is fuelling a bubble, also stating it was “like any Ponzi scheme.”
A primary driver of his speech was a desire for globally coordinated regulation. His concern is that while progress has been made, there needs to be faster movement to keep up with cryptocurrencies. Four areas were highlighted as anti-money laundering, taxation, regulatory reporting and consumer protection. In fact, Panetta urged proof of work cryptocurrencies to be taxed at a high rate to reflect their environmental impact.
The ECB director warned that the size of the cryptocurrency market is now larger than the sub-prime mortgage sector that triggered the global financial crisis. While recognizing that crypto represents only around 1% of financial assets, the large payment networks are now involved.
Panetta questioned many of the perceived benefits of cryptocurrencies. “Crypto-asset transfers can take hours to process. Their prices fluctuate wildly,” said Panetta. “The supposedly anonymous transactions leave an immutable trail that can be traced. A large majority of crypto holders rely on intermediaries, contrary to the avowed philosophy of decentralised finance.”
On the flip side, the central banker mentioned innovation three times, saying that care needs to be taken to avoid stifling innovation, preventing efficiency in payments. But one of the mentions was the need for central banks to engage more with innovation, including the ECB’s exploration of a digital euro.
“Crypto-assets are speculative assets that can cause major damage to society,” said Panetta.11All suggestions
