EUROPEAN CENTRAL BANK: ‘We Need Globally Coordinated Regulatory Action’ on Crypto-Assets

The European Central Bank has laid out a four-point plan for regulating and taxing crypto-assets with the goal of making them “strictly transparent” and held “to the same standards as the rest of the financial system.”

In a new article the European Central Bank (ECB)—one of the world’s largest and most powerful central banks—says it is time “to make coordinated efforts at the global level to bring crypto-assets into the regulatory purview.” The ECB, which is headquartered in Frankfurt, Germany, adds that “we need to ensure that [crypto-assets] are subject to standards in line with those applied to the financial system,” and that central banks the world over should be ramping up their own central bank digital currencies (CBDC) in response.

In the article—a transcription of a speech given by Fabio Panetta, a member of the ECB’s “Executive Board”—Panetta begins by saying that “Crypto-assets are bringing about instability and insecurity – the exact opposite of what they promised.” Panetta goes on to say that crypto-assets “are creating a new Wild West” and that “Satoshi Nakamoto’s dream of creating trustworthy money remains just that – a dream.” (Satoshi Nakamoto is the pseudonym used to refer to the creator—or creators—of Bitcoin.)

Setting the stage for the ECB’s new strategies for regulating crypto-assets, Panetta says “the crypto market is now larger than the sub-prime mortgage market was when—worth USD 1.3 trillion—it triggered the global financial crisis.” He adds the crypto market “shows strikingly similar dynamics.”

“Now is the time to ensure that crypto-assets are only used within clear, regulated boundaries and for purposes that add value to society,” Panetta adds. “And it is time for policymakers to respond to the people’s growing demand for digital assets and a digital currency by making sovereign money fit for the digital age.”

The ECB Executive Board member notes specifically that we cannot afford to leave on-chain peer-to-peer payments unregulated, as they can be used to circumvent any regulation and that “if we really want to [harmonize] supervision significantly across all EU Member States, the new European AML (antimoney laundering) Authority should supervise the riskiest crypto-asset providers.”

As for how Panetta et al. want to “harmonize supervision”? The board member says the ECB has a four-pronged approach:

1. First, we need to hold crypto-assets to the same standards as the rest of the financial system. This means swiftly implementing all rules to prevent the use of crypto-assets for money laundering and terrorist financing, based on the standards set by the Financial Action Task Force (FATF), and enforcing them effectively. These efforts should also aim to bring peer-to-peer crypto-asset transfers within the scope of the standards for anti-money laundering (AML) and countering the financing of terrorism (CFT).”

2.Second, we should consider how to adequately tax crypto-assets. Currently the tax treatment of crypto-assets is minimal: we know very little about who really owns them, and about the size and the distribution of the capital gains. By its very nature, the crypto-asset market makes it very difficult to identify tax-relevant activities because it relies less on traditional financial intermediaries, who typically provide information for tax purposes.

“We should bring taxation on crypto-assets into line with the taxation of other instruments and aim for alignment across jurisdictions, given the global nature of the crypto market. The introduction of reporting obligations for transactions above certain thresholds, as just recently proposed by the Organisation for Economic Co-operation and Development (OECD), would enhance transparency and combat tax evasion.”

3. Third, public disclosure and regulatory reporting need to be strengthened. The current practice observed in the crypto industry – for example, the disclosure of reserve assets backing stablecoins – is highly problematic. It is not sufficient and differs across products, and can even be misleading to investors and policymakers, Mandatory disclosure requirements for financial institutions are necessary to pinpoint where risks emanating from crypto-assets are concentrated. At the same time, public authorities (central banks, supervisors and AML authorities) need to further improve their data capabilities in order to detect illicit trades and emerging threats to financial stability.

4.Fourth, given the crucial unanswered questions on issues such as operational risk, volatility and liquidity, regulators should introduce strict transparency requirements and set out the standards of conduct to be followed by professional operators in order to protect unexperienced retail crypto-asset investors.”

“We should bring taxation on crypto-assets into line with the taxation of other instruments and aim for alignment across jurisdictions, given the global nature of the crypto market,” Panetta says, claiming that “the introduction of reporting obligations for transactions above certain thresholds… would enhance transparency and combat tax evasion.”

Panetta emphasizes the United States is “taking action on this front,” and the ECB “should build on this momentum and not wait for a crisis to occur before creating a dedicated global policy forum that brings together the key actors needed to address the risks arising from crypto-assets.”

In his conclusion Panetta says “Central banks must engage even more with digital innovation by upgrading wholesale financial infrastructures, operating fast retail payment systems and preparing for the issuance of central bank digital currencies.” A nod to what many financial experts—including American investment banker Catherine Austin Fitts—believe is an inevitability as central banks attempt to usurp the top-tier cryptocurrencies with their own, controllable ones.

Of course as Fitts, and many others, have noted, CBDCs can and will give central banks a new level of power of the world’s population. In essence, if people are forced to use CBDCs and CBDCs are perfectly controlled by central banks, the institutions would be fully in charge of any given citizen; in theory, if they wanted to limit somebody’s spending, for example, it’d be as easy as turning off their CBDC wallet. Without cash or other non-governmental cryptocurrencies, there’d be no way around the financial block.

In the video above Fitts says that “If it snaps into place with an all-digital financial system, including CBDCs, they will convert our home, our car, and our communities into digital concentration camps; and I don’t use that term lightly.” Fitts adds that “At that moment there will be no hope of building anything. We will have entered into a slavery system in which a handful of the most powerful people in the world can strip you and I of our assets, of our children, and control literally every aspect of our life—where we go, what we read, what we say, and what we eat.”

“We have one, maybe two years to stop it,” Fitts says. “So we need to be designing local currencies, but not for our digital concentration camps. We need to make sure that doesn’t happen.”

Feature image: Alex Guibord

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