ECB board member Fabio Panetta has woven his enthusiasm for blockchain technology and skepticism of cryptocurrency into an argument that supports both, albeit begrudgingly.
European Central Bank (ECB) executive board member Fabio Panetta has been a vocal supporter of central bank digital currency (CBDC) and cryptocurrency sceptic, and he presented his latest argument for CBDC on Jan. 5. Writing on the official ECB blog, he said that, by developing CBDCs, central banks “will safeguard the trust on which private forms of money ultimately depend.”
Panetta began his argument with a harsh appraisal of cryptocurrency in 2022. “Last year marked the unravelling of the crypto market as investors moved from the fear of missing out to the fear of not getting out,” he said.
That observation served as a segue to an examination of the position that cryptocurrency should be left alone to “burn rather than regulate at the risk of legitimising cryptos.” But this is a strawman that is immediately taken down:
“First, despite their fundamental flaws, it is not certain that crypto assets will ultimately self-combust.”
Second, “the cost to society of an unregulated crypto industry is too high to ignore,” especially for “uninformed investors.” Panetta went on to mention money laundering and environmental harm, and quipped, in the style that characterized the blogpost:
“It is not just cryptos that are being burnt.”
Having established the necessity of regulation, Panetta suggested that the European Union’s Markets in Crypto Assets (MiCA) legislation was an important step, but insufficient in regard to crypto asset lending or non-custodial wallet services. In addition, “unbacked cryptos […] should be taxed in accordance with the costs they impose on society,” Panetta said. His solution:
“Trading in unbacked digital assets should be treated by regulators like gambling.”
That treatment would include both taxation and measures to protect “vulnerable consumers.”
Even with taxation and regulation, crypto will have shortcomings, Panetta argued. Only CBDC “a risk-free and dependable digital settlement asset,” and by preserving the role of the central bank, trust in cryptocurrency will be safeguarded, he concluded.
The ECB blog caught the eye of the crypto community Nov. 30 with an entry titled “Bitcoin’s Last Stand.” Panetta has previously proposed banning crypto assets that have significant environmental impact.