European Central Bank (ECB) vice president Vitor Constancio has said that cryptocurrencies will never replace the fiat system.
According to a report from Reuters, Constancio said that they are a ‘misnomer’ and that they are merely a commodity used as a speculative asset. While he did concede that they had some use this was only in ‘very special circumstances’ such as in countries that were in an economic crisis.
However, he remains firm, stating:
The so-called private ‘cryptocurrencies’ can never prevail as general money substitutes.
The crypto market has been experiencing a surge in value in recent weeks with bitcoin at the helm leading the way. Earlier this week it was reported that bitcoin had reached a new all-time high of $7,800 after Mike Belshe, BitGo CEO, announced that the planned SegWit2x upgrade had been suspended.
With the market steadily rising and cryptocurrencies gaining in dominance, central banks are looking at them more closely to determine the potential threat they face.
Interestingly, in July, Mario Draghi, the ECB president, was reported as saying that digital currencies posed little threat to the economy. At the time, he said that:
…there is no evidence to suggest that the connection of VCS [virtual currency schemes] to the real economy has strengthened significantly.
While they may not present a risk at present, Draghi added that there could be a ‘build-up of risks’ from cryptocurrencies in the future. At which point, a ‘direct regulatory response’ would be required. At present, though, the ECB president doesn’t believe that cryptocurrencies such as bitcoin are ‘mature‘ enough for regulation.
Interestingly, it was only in September that Draghi was telling the European Parliament’s Committee on Economic and Monetary Affairs that the ECB did not even have the authority to regulate cryptocurrencies.
At the time, he said:
Certainly it’s not within our powers to prohibit or to do something of the nature…or to regulate bitcoin.
However, while the ECB president doesn’t believe that digital currencies pose a threat to the financial economy, Constancio is warning central banks not to back them. According to him, the possibility of a digital currency that was open to all citizens would be ‘really disruptive,’ adding:
This would be a radical political choice that could end banking as we know it and is therefore unlikely to happen.