While crypto-assets do not currently pose a threat to the euro area's financial stability, a disjointed approach at the national level could trigger regulatory arbitrage and hamper the resilience of the region's financial system, says an ECB paper.
With crypto-assets gaining in prominence, the European Central Bank has set up task force to examine their potential implications for monetary policy and the smooth running of market infrastructures and payments, as well as the stability of the financial system.
Currently, the task force says crypto-assets do not pose a threat because their combined value is still small and their linkages to the financial sector are limited. The regulatory framework also means that the likes of Bitcoin can also not be used to conduct money settlements in systemically important financial market infrastructures (FMIs).
Nevertheless, a new task force paper warns that exposures may increase as the crypto-assets ecosystem - eg post-trade services - develops further and more clarity regarding application of standards may create a more conducive environment for investments.
Another risk is disjointed regulatory initiatives at the national level, triggering regulatory arbitrage and, ultimately, hampering the resilience of the financial system to crypto-asset market based shocks.
The paper also highlights ways in which any threat can be dealt with. For instance, if FMI participants begin posing a greater risk in light of their crypto-asset business, operators would have the authority to put in place stricter restrictions. This could mean the Eurosystem forcing segregation of crypto-assets business for participation in Target2.
Overall, concludes the paper, it is "important that the ECB continue to monitor the crypto-assets phenomenon, raise awareness and develop preparedness for any adverse scenarios, in cooperation with other relevant authorities".
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