Losing 26% of its value in the last month, Bitcoin and other cryptocurrencies are in danger of dragging the “real economy” with their unpredictable fluctuations. Fabio Panetta, a member of the ECB's governing body, said in an interview on May 5 that “the value of the cryptocurrency market exceeds that of the mortgage market that triggered the financial crisis.” On the occasion of the above, Christos Fanopoulos, Senior Director of the Banking Department of the Central Bank answered in writing questions of KYPE about cryptocurrencies.
What are cryptocurrencies and what are the risks
Explaining what cryptocurrencies are, Mr. Fanopoulos noted that these assets are not “currencies” with the broad concept we are used to. Instead, it is a high-risk investment.
“Cryptocurrencies or cryptocurrencies (hereinafter referred to as cryptocurrencies) are a digital or virtual asset that operate as a means of trading based on the principles of cryptography, a method that does not allow third parties to access information,” he said. A characteristic of cryptocurrencies is that their production, storage and distribution as well as all transactions made with them are done exclusively electronically.
He stressed that the cryptocurrencies are not issued, nor are they guaranteed by any public authority. Furthermore, they have no legal status of currency or money and the operation of most of them is not subject to the control of a central body, which carries increased risks for individuals and legal entities who choose to trade or hold positions in cryptocurrencies.
< p class = "text-paragraph">As he said, the main risks are related to the lack of a reliable supervisory/regulatory framework capable of offering legal protection to cryptocurrency holders, to the anonymity and lack of transparency that usually surrounds cryptocurrency transactions, to misleading or incomplete information from providers to consumers and investors. In addition, weak governance structures and cybersecurity measures implemented by online platforms acting as cryptocurrency exchanges are at risk, with some collapsing and others stealing hackers' money. Finally, the high volatility of cryptocurrency values is dangerous, which in combination with the lack of liquidity and easy exit options from such transactions, can lead to large losses in the capital of cryptocurrency owners.
Risks for the European and Cypriot economy
Mr. Fanopoulos, answering whether the European economy can be affected by them, noted that the upward trend recorded in this market and the high volatility recorded by the prices of cryptocurrencies in combination with the above risks, outline a potential risk. for the European economy.
In 2018, the Financial Stability Report identified in its report various channels through which financial stability and the economy in general can be affected. Among them, there is the impact of financial wealth and trust in general. The interconnection of the cryptocurrency market with the financial sector and payment systems are also potential risks to the economy, he said, adding that it is worth noting that the above risks are additional unbalanced factors for the impact that can have on the economy, especially in case there is a sharp and uncontrollable downward correction of prices.
Regarding Cyprus, he noted that at this stage there is no data on the exposure of the Cypriot economy to cryptocurrencies. Based on the ECB data for 6 major economies, as published in the latest ECB Financial Stability Report, it appears, however, that up to 10% of households hold cryptocurrencies.
& # 8212; & # 8212; & # 8212; & # 8212; & # 8212; & # 8212; & # 8212; & # 8212; & # 8212;
Asked by KYPE where the ECB's effort to issue a digital euro is, Mr Fanopoulos said the digital euro would be an additional payment option, ensuring access to the safest form of money – European Central Bank money – as one alternative and at the same time complementary choice from cash. “In this light, the digital euro will increase public confidence in digital payments. We clarify that the digital euro will not replace cash in euros, but will work in addition to them “, he noted.
He added that the Eurosystem is currently discussing what form the digital euro could take. The exploration phase, which began in October 2021, will last about two years and is expected to be completed in October 2023. It looks at how the digital euro could be designed and distributed to traders and the public, as well as its impact. changes in the European legislation that may have to be made.
The decision to create the digital euro will be taken after the completion of the investigation phase at the end of 2023, clarified.
He stressed that the digital euro will not be equivalent to a cryptocurrency. Cryptocurrencies are essentially different from central bank money because their prices are often volatile, making them difficult to use as a means of payment or as a unit of measurement, and they are not backed by any government agency. For the same reason, they carry increased risk as an investment vehicle, he noted.
On the contrary, those who will eventually choose the digital euro will be able to trust it as much as the cash in euros, as both of these forms of the euro will be of equal value and will be supported by the Eurosystem, he said.
Concluding, Mr. Fanopoulos said that central banks and regulators must meet the growing demand for both digitization and immediacy in making retail payments. This is why countries around the world are investigating the possible issuance of central bank money in digital form.
The provocative privilege of diplomats, Odysseus and the conflict of interest & # 8211; Nikos Christodoulidis benefited financially
PHOTO: The first cruise ship arrived at the Ayia Napa Marina