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Meanwhile, the ECB is currently exploring the possibility of launching a central bank digital currency.
European Central Bank (ECB) executive board member Fabio Panetta has called for a ban on crypto assets with a major environmental impact as a way of mitigating risks.
ECB May Ban Crypto Assets that Have an Impact on the Environment
In a written statement addressed to the Insight Summit at the London Business School on December 7, Panetta called for harmonized crypto taxation to help address the energy and environmental cost attached to mining and validation. In reference to proof-of-work assets, he proposed that cryptocurrencies that are “deemed to have an excessive ecological footprint” be banned. Panetta noted that crypto markets are at constant risk owing to their interconnected nature and high leverage. Commenting on the FTX liquidity crisis and subsequent collapse he said:
“The inadequate governance of crypto firms has magnified these structural flaws. Insufficient transparency and disclosure, the lack of investor protection, and weak accounting systems and risk management were blatantly exposed by the implosion of FTX. Following this event, crypto-assets may move away from centralised to decentralised exchanges, creating new risks owing to the absence of a central governance body.”
MiCA Could Mandate Reporting of Ecological Impact by Miners
Panetta’s remarks come after the approval of the Markets in Crypto Assets (MiCA) bill in October by the European Parliament Committee on Economic and Monetary Affairs following extensive discussions.
The environmental impact of cryptocurrency transactions and mining has been a major talking point in discussions around regulation among policymakers globally. Earlier this year, the New York Senate passed a bill banning proof-of-work (PoW) mining that uses non-renewable power for two years to ease the environmental impact of the activity. European Union officials previously rejected a complete ban on crypto mining but it is expected that the new MiCA bill could mandate that crypto mining companies report any potential environmental impact attached to their operations.
The ECB is currently exploring the possibility of launching a central bank digital currency. On December 7, Panetta provided guidelines for the development of apps and wallets using the digital euro. The guidelines were provided to the five companies selected for this purpose following a public call for expression of interest made in April this year. The documents provide the information needed for the development of front-end prototypes to match the Eurosystem’s back-end infrastructure without hampering the developers’ room for innovation.