European officials: Virtual currencies are no way to pay
Several of Europe's top finance officials are skeptical about virtual currencies like bitcoin, saying they are risky for investors and inefficient as a way to pay for things.
Germany's top monetary official, Jens Weidmann, said in a speech Wednesday that virtual currencies such as bitcoin are not good means of payment because their values fluctuate so rapidly. The value of bitcoin jumped last year from below $1,000 to almost $20,000 in December before falling back to around $9,000 currently.
Weidmann, who heads Germany's national central bank and sits on the governing council of the European Central Bank, the issuer of the euro, added that virtual currencies are no substitute for conventional money.
"For a stable monetary and financial system we need no crypto-tokens, but rather central banks obligated to price stability and effective banking regulation, and we have both in the eurozone," he said.
He said that central banks did not need to issue such currencies themselves, which he said could heighten the risk of bank runs. If people were able to transfer bank deposits with the click of a computer mouse to an account at the central bank, the threshold for fleeing the private banking system would be lowered, he said.
Weidmann's remarks follow a series of statements from top European officials warning banks and consumers about virtual currencies. The three European supervisory authorities for banking, securities, and insurance and pensions have warned consumers of the risks of buying such currencies, saying they are "highly risky and unregulated products and unsuitable as investment, savings or retirement products."
Last week, top European Central Bank official Yves Mersch said that central banks were concerned about the social and psychological effects the currencies seem to have. "There's so much money flowing in that it's like a gold rush—but there's no gold," he said in an interview with the Bloomberg news service.
Mersch is a member of the bank's six-person executive board that runs the institution day to day at its headquarters in Frankfurt, Germany. He said that if banks started loaning money to finance such activities, "it would obviously be of concern for us." The ECB is the top banking supervisor in the eurozone.
The skeptical stance by eurozone officials contrasts with the effort by Sweden's central bank to study the possible introduction of an e-krona, an electronic currency linked to the country's central bank. Sweden is not a member of the eurozone and controls its own currency, the krona. The central bank says no decision has been made and laws would have to be changed to implement such a proposal. The use of cash has dwindled in Sweden to about 15 percent of retail transactions in 2016, according to the bank.
On Wednesday Mersch defended the continuing use of physical notes and coins, in the face of occasional proposals to limit or do away with cash entirely in favor of electronic payments. Mersch said that cash enabled people to exercise their rights to privacy and independent action without monitoring or interference by others.
Mersch and Weidmann said that the Group of 20 is looking into how to ensure that virtual currencies do not disrupt financial stability. They said a global forum such as the G-20 is a good place for the discussion since some of the virtual currencies have no national base. The G-20 is made up of 19 countries with 85 percent of annual global economic output plus the European Union. The group presidency is held this year by Argentina, which will host a meeting of finance ministers and central bank governors March 19-20 in Buenos Aires.
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