The collapse of the crypto-currency exchange FTX should not have an impact on the global financial market, says Luis de Guindos, vice president of the European Central Bank (ECB), who is more concerned about the high inflation affecting the eurozone.
During the presentation of the semi-annual report on the financial stability of Europe, the head of the ECB said he was not surprised by the collapse of a project in the crypto-currency sector. However, he was impressed by the “speed“of the collapse of an exchange that, until recently, represented the second largest trading volume in the world.
FTX is a crypto-currency exchange that was declared bankrupt on November 11. Subsequently, it emerged that customer funds were allegedly used, without their consent, in risky transactions through Alameda Research.
This company used with the FTX native token as collateral, which easily led to a liquidity crisis on the exchange after the investigations published by Coindesk.
For Luis de Guindos, while some analysts link the FTX case to the collapse of Lehman Brothers, he dismisses the repercussions on the entire global financial system. “My impression is that [les retombées] are limited to the crypto-currency space“, he added.
9. SBF investments span the ecosystem. pic.twitter.com/ShmhHECyAp
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The ECB vice-president probably relied on on the fact that all investments were made in companies in the cryptoasset sector, it is noted that several US politicians have reportedly received mega-donations.
Luis de Guindos talks about the risks to financial stability in the European Central Bank’s 130-page semi-annual report, where there is no mention of bitcoin or other cryptoactives. He only points out that crypto-currencies are “the dominant means of payment in response to cyber-attacks“, as reported in the media.
Inflation undermines Europe’s financial stability
The European Central Bank’s Financial Stability Report highlights the risks arising from inflation and weak economic growth that are putting the Eurozone on the brink of a technical recession.
“Individuals and businesses are already feeling the impact of rising inflation and slowing economic activity” says the ECB vice president in his assessment of the increased risks to the economy.
The ECB paper also reflects the growing vulnerability of European households, as well as businesses and governments, which are now carrying more debt.
It warns that rising commodity prices and gas and electricity bills are reducing the purchasing power of households and, potentially, their ability to repay loans, especially in low-income groups.
Inflation far exceeded expectations in December 2021. Even in many countries, real rates have doubled projections, with Europe being one of the regions with the highest inflationary impact.
Luis de Guindos is alarmed by the effects of inflation, but generally does not question the ECB’s expansionary monetary policy, which creates euros and floods the economy. He seems to ignore the fact that, through the law of supply and demand, a high volume of money in the system reduces the value of national currencies and, in the face of this devaluation, the prices of products increase.