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Digital currencies moved up on the agenda: ECB’s Yves Mersch

The European Central Bank is concerned about the social and psychological effects that digital currencies seem to have, an ECB executive board member said recently.

In an interview with Bloomberg, Yves Mersch spoke at length on digital currencies, the role of central banks, digital euro, and much more.

Mersch said that the key question is not that cryptocurrencies are currently at a level that would cause huge disruption in the real economy, but rather on the social and psychological effect they appear to have. However, he noted that the explosive growth in cryptocurrencies in the past year saying:

“As long as it was negligible it was not considered a priority, but since this hype accelerated at the end of last year it has moved higher up on the agenda…The valuations are not at a level where you would now jump from your chair and say “you need to forbid this thing”. We are not there. But what I do not like is the public hype driving this thing. Also the amount in ICOs is rather small.”

When asked about blockchain technology, Mersch stated that the TARGET Instant Payment Settlement (TIPS) is more efficient.

“TIPS is 10 seconds, 0.2 cents. DLT transactions are at best 30 euros and take at least one hour. Why would we abandon TIPS? We have a mandate for efficient payment systems, and we go for efficiency. We are not bound to a technology, we are bound to results, and I think it’s the result that counts,” Mersch said. “As to the technology of DLT, we are testing it but there are so many unsolved questions in terms of governance and legal certainty in DLT. We are looking to what extent we could overcome these legal barriers, but we are at a very early stage.”

Regarding the possibility of digital euro, Mersch said, “I could imagine a digital representation of cash, meaning a digital issuance that would replicate the features of cash, not a new digital currency disrupting bank intermediation, in order not to rock the boat of our whole economy and put into question the functioning of a two-tier banking system.”

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