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8th December 2022 > > The ECB.


Yet more one-sided analysis and critique from a member of the ECB.

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Risk markets quiet across the board though 10-year treasuries seem to be on a pleasingly downward trend away from the 4-handle. Retrenchment in consumer spending even as we head into Christmas is going to cause its own downward impact on those flawed and unreliable inflation figures.

Curious Cryptos’ Commentary — Fabio Panetta, Member of the ECB’s Executive Board

Regular readers will be unsurprised to hear that Panetta and I rarely see eye-to-eye on all things crypto. And to be honest, on very few other subject matters too, but that’s not up for discussion today.

Yesterday, Panetta gave a speech at a conference held at the London Business School, giving us an insight into his personal views of cryptos, which are probably indicative of the institutional view held by the ECB (European Central Bank).

It does not make for pretty reading:

Shall we dive in?

Remarkably, just a few minutes into his diatribe, Panetta makes a comment that we can all heartily agree with:

“We should therefore focus on protecting inexperienced investors and preserving the stability of the financial system.

Ensuring that crypto-assets are subject to adequate regulation and taxation is one path to achieving this. Here, we need to move rapidly from debate to decision and then implementation.”

Unfortunately, things go rapidly downhill from here. His most immediate conclusion is the most chilling to those of us who cherish freedom and liberty:

“To harness the possibilities of digital technologies, we must provide solid foundations for the broader digital finance ecosystem.

This requires a risk-free and dependable digital settlement asset, which only central bank money can provide. And that is why the ECB is working on a digital euro while also considering new technologies for the future of wholesale settlement in central bank money.”

Even if we ignore the horrors inherent to CBDCs (Central Bank Digital Currencies), for that is what he is lauding here, since when has the backing of a central bank resulted in a risk-free and dependable asset? Recent history in places as far afield as Zimbabwe, Venezuela, and Cyprus, show that Panetta is either ignorant, or dishonest.

He then goes on to make three unsubstantiated claims which he believes makes cryptos fundamentally flawed.

Firstly, that “unbacked crypto-assets offer no benefits to society”.

Under this wide-ranging heading he repeats the same old tropes about cryptos being solely about speculation, and outside of that field their most useful function is to fund criminal and terrorist activity, alongside evading taxes.

He claims that as cryptos do not generate financial flows (which simply isn’t true, as we have seen in the CCC’s recent series of staking articles) they have no value as future income cannot be discounted to the present. That will come as a surprise to all investment holders of gold and other precious metals.

And of course, there is the obligatory mention of the environmental impact of cryptos, without any context.

Secondly, that “stablecoins are exposed to runs”.

Here Panetta is on stronger ground, especially in the light of the collapse of algorithmic stablecoin UST (Terra). Algorithmic stablecoins are a disaster waiting to happen, and no sensible person would ever get involved in one.

Stablecoins with audited reserves of cash, or cash equivalents (typically short, dated treasuries) have value in the same way that money-market funds add value. Panetta refuses to engage in any semblance of reasonableness and jumps once again to his favoured (only?) conclusion:

“In the absence of a risk-free digital anchor, which only digital central bank money can provide, stablecoins represent an overambitious attempt to create a risk-free digital asset backed by risky assets.”

Thirdly, that “crypto markets are highly leveraged and interconnected”.

This is a fact of life for all investment markets. If the same rules and regulations that apply to legacy centralised retail markets were to be applied to crypto centralised retail markets, then this problem becomes a level playing field. The lack of regulation is not the fault of cryptos, it is the fault of a lack of leadership by the political and financial elite, including Panetta himself.

His list of actions to be taken to mitigate the risks he sees, relate to greater regulation and harmonised taxation, the latter being one of the ECB’s pet projects and will forever more be fiercely resisted by the two largest tax havens in the world, Lichtenstein, and the Republic of Ireland.

Oh, and of course, the implementation of a Euro CBDC as he falls for the mistaken belief that the public’s desire for cryptos is just a misrepresentation of their desire for CBDCs.

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