While American central bankers are still just monitoring the risks bitcoin poses to the established banking system, their counterparts across the Atlantic are already preparing to compete with the popular cryptocurrency. A member of the European Central Bank (ECB) executive board has called on commercial banks to implement new solutions that, in his view, will curb the rapid growth of bitcoin among everyday users.
“Banks need to implement instant payments as soon as possible and provide an alternative narrative to the ongoing public debate on the alleged innovation brought by virtual currency schemes,” ECB director Yves Mersch told bankers at a meeting in Rome.
This supposed alternative to bitcoin might be part of a two-pronged attack on the cryptocurrency by the ECB which is known to be looking into “legal restraints” against its users in the areas under the jurisdiction of the central bank.
This year’s explosive price rally and mainstream financial adoption of bitcoin are seen by supporters as a direct challenge to central banks. Beyond the possible monetary effects in the future, the success of bitcoin signals people’s discontent with the handling of their money supply by the Fed, ECB and their equivalent institutions around the world.
No ECB-Coin Just Yet
The ECB director, who proposed in January a model for a central bank issued digital currency, has now indicated that the time is not yet ripe for such an innovation. He said: “We shall also experiment with cash on different digital technologies. Other adventurous applications of a more disruptive nature are simply not robust enough.”
By focusing strictly on digital cash applications by commercial banks, offering instant transactions and 24/7 service, Mersch is going against a recent trend among central bankers in Europe. Both Sweden’s Riksbank and the Bank of England have revealed they are examining their options for national cryptocurrencies or blockchain-based alternatives.
The main reason for this approach by the ECB is apparently to accommodate member countries such as Germany where cash usage is still very high. Bundesbank board member Carl-Ludwig Thiele, commented from Berlin that: “The issue of digital central bank money is in our view not a realistic option for the foreseeable future.”
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