Gold rush with no gold

Interviewed by Bloomberg, Yves Mersch, Executive Board of the European Central Bank (ECB) expressed his and other central bankers’ concern about the growing popularity of virtual currencies. Indeed, Mersch confirms that all currencies are supposed to preserve consumer confidence, something that virtual currencies (VCs) could potentially undermine. “There is so much moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More flowing in that it’s like a gold rush – but there is no gold”.

It’s a delicate topic as citizens are free to do what they please with their capital, even if their actions imply losing their savings. Yet, in their supervisory – and not regulatory role – central banks feel responsible to inform the public about the implications of ICOs and VCs. Indeed, the implications of VCs go beyond their apparent investment potential. Their expansion could have serious consequences on everything from payments systems, banks, the infrastructure of financial markets as well as the core functioning of central banks. There is still a clear distinction to be made, stresses Mersch, between “virtual private initiatives, not backed by anyone, and trusted public currencies that are legal tenderMoney that is legally valid for the payment of debts and must be accepted for that purpose when offered. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered (“tendered”) in payment of a debt extinguishes the debt. There is no obligation on the creditor to accept the tendered payment, but the act of tendering the payment in legal tender discharges the debt. More and backed by whole economies”. Ultimately, the role of the ECB to is to protect market integrity and the consumer, and VCs don’t seem to do either.

When asked what he thinks about a potential digital central bank-issued currency, Mersch does not dismiss the idea as a future possibility as long as it remains a “digital representation of cashMoney in physical form such as banknotes and coins. More” with all its current features and attributes.

This post is also available in: