ECB to people: Not responsible if you lose money on Bitcoin, your governments are

(Photo: :European Central Bank Audiovisual Services)

Last Tuesday, 13 February Mario Draghi, the President of the European Central Bank in the most solemn terms said regulating or even banning Bitcoin “it’s not the ECB’s responsibility to do that”. However, he didn’t refrain from eagerly pointing out the very risky and misty nature of the digital ‘monies’. So, when asked again if one should buy Bitcoins, he replied “Frankly I would think (about buying) it carefully”, using the restricted jargon of central bankers.

He then underlined the fact of Bitcoin’s wild oscillations “much more than the euro’s” and he reminded everybody the cryptocurrencies are not supported by any public body. The ECB officially calls Bitcoin not a currency but a speculative asset. Its official site says “In other words, it is something that you can gamble on to make a profit, but with a risk that you will lose your investment. In short something like a Ponzi scheme.

This is a clear caution by the ECB for the wider public about the extremely risky nature of investing in cryptocurrencies. Draghi was speaking in a video conference, answering questions from the public. The event was organized at the central building of ECB in Frankfurt am Main. Nevertheless, he recognized the value of the blockchain technology, by valuing it as “quite promising” and commented it can generate “many benefits” in settling payments. He observed though that it’s still not safe enough to be used by central banks. It’s made known so far that two major central banks, the ECB and the Bank of Japan have being examining blockchain technology for about a year now.

Not about Bitcoin

This article however is not about Bitcoin and the other cryptocurrencies or what the global banking community is thinking or doing about all that. Such an attempt would greatly surpass the capacities of this writer. This article is about ECB’s attitude and action or rather inaction vis-à-vis the digital currencies. ECB has actually done nothing in relation to the authorization and administrative background, related to the functioning of cryptocurrencies.

Of course, on many occasions members of ECB’s Governing Council and more so some key members of its Executive Board, like Vice President Vítor Constâncio have warned the wider public about the unpredictable and extremely risky character of cryptocurrencies. The ECB has not taken any practical action beyond that point, unlike other central banks. For example, the central banks of China and South Korea have forbidden the fundraising through digital money.

The central Bank of Russia has blocked the websites selling Bitcoins and other digital moneys, while on the contrary the Bank of Japan has recognized the Bitcoin and some other cryptocurrencies as legal tender that is as cash acceptable for all purposes. The ECB has done nothing of that short and last Tuesday Draghi ‘officially’ confirmed this not going to change.

Pointing to governments

Given that digital monies are claims against some elusive private entity – not a central bank – Draghi rushed to ‘counsel’ the wider public about the structurally associated risks. It’s not our job he concluded to mend that. In this way and in a very clear manner he tells the 19 central banks and governments of the euro area member states, that it’s their responsibility to regulate, ban or officially authorize some functions of the cryptocurrencies. Up to now, in the borderless and quite chaotic environment of the World Wide Web a lot of Europeans are buying, selling, generating, investing, exchanging and in general being involved in this affair. No official action has being taken to protect those people or regulate the jungle.

If this unregulated universe continues expanding with the breathtaking tempo it has being growing up to now, there might come a moment where a lot of people could be severely hurt. Actually, this may come at any moment. In view of this dreadful prospect, this week Draghi  indirectly but quite clearly made the 19 central bankers and the governments of Eurozone responsible. He indirectly but loudly left it to be understood it’s up to them to regulate or why not altogether or partially ban the digital currencies.

ECB’s mandate

If there were more relevant questions addressed to Draghi about this issue, he would have certainly pointed out what the mandate of the ECB is. He has repeatedly underlined the fact that ECB’s only and at the same time exclusive task is to take whatever appropriate measures are needed, to drive the inflation rate close but below to two percent. The ECB serves this purpose with the relevant monetary policy.

Currently though, and in many ways inappropriately, a number of major euro area member states spearheaded by Germany and Holland believe and say so that the ECB should call off its extra relaxed monetary measures (zero interest rates and ample cash injections).

The ‘money bags’

In short, those critics of ECB’s policy are telling Draghi how to do his job, despite his clear and exclusive mandate for it. Not to forget that governments are institutionally asked to avoid meddling in it. The reason for their interference is of course that his policy helps the deficitary states of the South to cheaply refinance their debts and support growth. At the same time it denies any interest on deposits for the ‘money bags’ of the Union.

Obviously the salvation of some member states and ultimately of the single money itself are more important targets, than the interest rate on someone’s rich deposits. So the questions about the Bitcoin affair offered Draghi a pretty good chance, to remind to his critics that they have better take care of their neglected obligations, than illegally meddling in his monetary policy.

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