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The ECB executive called the European Union’s Markets in Crypto Assets (MiCA) an important step.
Fabio Panetta, the executive board member of the European Central Bank (ECB), recently published a pushing forward the need for developing a central bank digital currency (CBDC). As per the previous reports, the ECB has been already working on its CBDC – Digital Euro – and could see it coming into the market by 2025.
ECB and CBDC
In his arguments in the blog post on January 5, Panetta presented his latest arguments noting that by developing CBDCs, central banks “will safeguard the trust on which private forms of money ultimately depend”.
Panetta began his arguments by adding how the last of 2022 was pretty rough for the cryptocurrency market. “Last year marked the unraveling of the crypto market as investors moved from the fear of missing out to the fear of not getting out,” he said. The ECB executive has been a skeptic of cryptocurrencies in the past as well.
Thus, the recent unraveling of events in the crypto space gave Panetta the chance to double down on his skepticism. The ECB executive notes that these massive failures in quick successions reflect the incredibly high leverage in the crypto space. He further adds that this exposes the “inadequate governance structures” of the crypto ecosystem. Lashing out at the crypto space, Panetta adds:
“The crypto market rout has left the financial system largely unscathed. Many therefore think it preferable to let crypto burn rather than regulate at the risk of legitimising cryptos. Let me voice two important reservations about this view. First, despite their fundamental flaws, it is not certain that crypto assets will ultimately self-combust. Second, the cost to society of an unregulated crypto industry is too high to ignore”.
ECB Executive Pushes for MiCA
Citing the king of losses that retail investors faced with the fall of the crypto market last year, Panetta notes that it is imperative to bring a proper regulatory framework in place. “We need to build guardrails that address regulatory gaps and arbitrage and tackle the significant social costs of cryptos head-on, he added.
The ECB executive called the European Union’s Markets in Crypto Assets (MiCA) an important step. However, he adds that it is insufficient to address matters related to crypto asset lending or non-custodial wallet services. He also noted that “Trading in unbacked digital assets should be treated by regulators like gambling.”
Panetta believes that this treatment would include both – taxation as well as measures to protect vulnerable customers. But this could have its own shortcomings as well. Only CBDC is “a risk-free and dependable digital settlement asset,” and preserving the trust in central banks will help to safeguard the trust in digital assets.