The European Central Bank (ECB) has proposed a directive of the European Parliament and of the Council stating that ‘virtual currencies do not qualify as currencies from a Union perspective,’ and wants digital currencies to be explicitly defined as not legal currencies or money.
In a document titled, Opinion of the European Central Bank [PDF], the ECB is proposing an amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC.
According to the ECB, the use of digital currencies, such as bitcoin, pose a threat as terrorists and criminal groups are able to transfer money within digital currency networks with a certain level of anonymity.
The ECB believes that as digital currencies aren’t required to be exchanged into legally-established currencies they can be utilized as for illegal activities.
Such transactions would not be covered by any of the control measures provided for in the proposal and could provide a means of financing illegal activities.
Avoid Promoting Digital Currencies
The ECB has outlined its concerns stating that the Union legislative bodies should not promote the use of digital currencies as they are not legally established as currencies. This is despite the fact that the ECB is open to blockchain technology and recognizes that digital currencies may ‘increase efficiency, reach and choice of payment and transfer methods.’
However, one of the concerns that the ECB has relates to the volatility linked to digital currencies. According to the ECB, unlike fiat currencies issued by central banks, digital currencies typically have a high volatility rate; however, a report published last year by the ECB, found that digital currencies didn’t pose an immediate risk to banks.
And yet the concern of the ECB is the fact that if the use of digital currencies, such as bitcoin, increase in the future, central banks won’t have control over the supply of money, thus posing a potential risk to price stability.
Thus, while it is appropriate for the Union legislative bodies, consistent with the FATF’s recommendations, to regulate virtual currencies from the anti-money laundering and counter-terrorism financing perspectives, they should not seek in this particular context to promote a wider use of virtual currencies.
This, however, isn’t the first time that the ECB has come down on bitcoin. The ECB has a long history of skepticism with the currency and has said in the past that bitcoin is not subject to the governing payment systems such as know-your-customer (KYC).
The ECB’s Stand on Digital Currencies
According to the ECB, ‘virtual currencies do not qualify as currencies from a Union perspective.’
As the Euro is the single currency of EU members who have accepted the Euro as their currency, the ECB believes that digital currencies should be classified as not legal currencies.
The ECB states that ‘it would be more accurate to regard them as a means of exchange, rather than as a means of payment.’ However, it doesn’t take into account that digital currencies can be used for other things rather than payments, for example, investments, commodities and securities products.
For now, though, it seems as those the ECB is seeing digital currencies as a negative rather than a positive and are attempting to shed a negative light on the currency despite its wide acceptance in numerous countries.
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