Yesterday, the European Central Bank (ECB) tweeted that bitcoin is not a currency.
— European Central Bank (@ecb) July 9, 2019
Recently, there has been a notable change in the attitude towards cryptocurrencies from companies, regulators, governments, as well as the banks. In the last three years or so, these established institutions have gone from suspicious, to curious, and in some cases, even openly using blockchain and cryptocurrency.
However, even with this quick turn around in attitude towards cryptocurrency, central banks remain the most sceptical. With a near-total monopoly over the global financial system, it is understandable why something like bitcoin might catch the ire of such institutions.
However, there may well be a breaking of the ice coming as the European Central Bank (ECB) prepares to welcome someone who is cautiously optimistic about the future of money, and the power and potential of cryptocurrency.
Christine Lagarde, who has just been nominated to replace Mario Draghi as President of the ECB, comes into the role having made several positive comments about cryptocurrency during her time at the head of the International Monetary Fund (IMF).
Seeing the future
Lagarde’s comments about the potential of bitcoin and cryptocurrencies came back in 2016 when, as the Managing Director of the IMF, she made a bold claim.
Lagarde said: “I would be very surprised if, in 5 years time, many of the existing financial institutions have not adopted those tools.”
This is a big prediction, in general, but it is made even more intriguing as it came from an institutional financial head, three years ago. We still have two years to go to see if Lagarde’s prediction will come to full fruition, but some may argue her prophecy is already fulfilling itself.
Many banks and financial institutions have already started experimenting and exploring both blockchain and cryptocurrencies. The next two years have also been predicted to be a time where these experiments begin to be rolled out as actual products.
Lagarde was also at the forefront, in 2017, of warning governments to not be dismissive of blockchain and cryptocurrency.
“Instead of adopting the currency of another country – such as the US dollar – some of these economies might see a growing use of virtual currencies. Call it dollarisation 2.0. So in many ways, virtual currencies might give existing currencies and monetary policy a run for their money,” Lagarde said.
While these comments from Lagarde makes her sound like a true Bitcoin maximalist, she is still very cautious about cryptocurrencies. They come with their own issues and concerns, especially as they navigate their way into the financial space and its regulations.
While understanding the potential of cryptocurrencies on the financial market, Lagarde has also pinpointed their disruptive nature. The financial system is probably ripe for disruption, and it would be a little stubborn to deny that, but the level of disruption needs to be managed.
“I think the role of the disruptors and anything that is using distributed ledger technology, whether you call it crypto, assets, currencies, or whatever … that is clearly shaking the system,” Lagarde told CNBC in April.
“We don’t want to shake the system so much that we would lose the stability that is needed,” she added.
A new ally
With Lagarde moving to head up the ECB, suddenly, an arena of incredible financial control has someone in charge who has a good understanding of what cryptocurrencies can do, and what they can’t do.
Central banks have been talking about issuing their form of Central Bank Digital Currency (CBDC) in the past, but they have been quite one-eyed about the true potential of blockchain-based currencies.
The idea of a CBDC is far removed from an actual digital currency on the blockchain, and as such, misses out on a lot of potential. Having Lagarde at the head of the ECB may well lead to a more significant push to explore a blockchain digital currency that can be utilised in Europe, to begin with.
Over the years there have been several allies for the cryptocurrency space, and Lagarde is probably one of them. Her installation at the top of the ECB could lead to much broader institutionalised adoption.
Because of her approach to cryptocurrencies being cautiously optimistic, any adoption or integration of blockchain will likely be well thought-out and devoid of hype or over-excitement.
Still, the fact that Lagarde is now in a position of power at the ECB does not necessarily mean that central banks will be turned on to cryptocurrencies instantly. They remain a niche and small consideration, and still very much one for the future – but at least they are in consideration.