The ECB is encouraging the development of CBDCs on the grounds of improving the situation of consumers.

Fabio Panetta, a member of the European Central Bank (ECB) executive board, recently published an article highlighting the need to develop a central bank digital currency (CBDC). According to previous reports, the ECB has already been working on its CBDC – the digital euro – and could see it arrive on the market by 2025.

The ECB and CBDC

In his January 5 blog post, Fabio Panetta made his final arguments by noting that by developing CBDCs, central banks “will preserve the trust on which private forms of money ultimately depend“.

Fabio Panetta started his arguments by adding how the last year 2022 has been quite rough for the crypto-currency market. “Last year marked the unraveling of the crypto-currency market, as investors went from being afraid to miss to being afraid to exit“, he said. The ECB head has also been skeptical of crypto-currencies in the past.

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Thus, the recent collapse of events in the crypto space has given Fabio Panetta the opportunity to reinforce his skepticism. The ECB executive notes that these massive failures in rapid succession reflect the incredibly high leverage in the crypto space. He adds that this highlights the “inadequate governance structures” of the cryptographic ecosystem. Addressing the crypto space, Fabio Panetta said the following adds:

“The crypto market rout has left the financial system largely unscathed. Many therefore believe that it is better to let the crypto burn than to regulate at the risk of legitimizing cryptos. Let me offer two important caveats to this view. First, despite their fundamental flaws, it is not clear that crypto assets will eventually self-destruct. Second, the cost to society of an unregulated crypto industry is too high to ignore.”

ECB executive pushes for MiCA

Citing the king of losses that retail investors faced with the crypto-currency market’s collapse last year, Fabio Panetta notes that it’s imperative to get the right regulatory framework in place. “We need to build safeguards that close regulatory loopholes and arbitrage and tackle the significant social costs of cryptos head on,” he said.

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The ECB executive called the European Union’s crypto asset markets (MiCA) an important step. However, it adds that it is insufficient to address issues related to crypto asset lending or non-depository wallet services. It also notes that “trading in unbacked digital assets should be treated by regulators like gambling.

Panetta believes that this treatment would include both – taxation as well as measures to protect vulnerable customers. But it could also have its own drawbacks. Only the CBDC is “a risk-free and reliable digital settlement asset“, and preserving trust in central banks will help preserve trust in digital assets.

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