Why a new head at the European Central Bank matters for Bitcoin

By Jeff Benson

The European Parliament today approved Christine Lagarde as President of the European Central Bank (ECB). And her appointment could signal an incoming wave of crypto regulations from the ECB, which has been relatively unconcerned about the risk the digital assets such as Bitcoin pose to the economic system.

The non-binding recommendation is the prelude to a European Council vote scheduled for mid-October. Lagarde, who served as head of the International Monetary Fund (IMF) until her resignation became effective September 12, was first nominated to the ECB by the Council in July. 

The ECB is charged with handling monetary policy for the 19 countries within Europe that have adopted the euro. (The European Parliament is the legislative body for the entire E.U., which includes an additional nine members that do not use the euro.)

The current occupant of ECB's top post, Mario Draghi, has been in the role since 2011 and will end his term at the end of October. Historically, Draghi has not seen much of a role for ECB to get involved in cryptocurrencies, which he thinks is more the domain of consumer protection agencies. As recently as May 2019, Draghi publicly stated:

"At this point in time, they [cryptocurrencies] are not significant enough…that they could affect our economies in a macro way. And so we tend to consider them as speculative assets—highly risky—but as far as the rest is concerned, it's not really something that pertains to the central bank, the task of monitoring and regulating, possibly, this." 

Lagarde may or may not be pro-cryptocurrency, but she seems to disagree with Draghi about the effect Bitcoin and other cryptocurrencies have on the economy. In April 2019, a month before Draghi's comments, she told CNBC, "I think the role of the disrupters and anything that is using distributed ledger technology, whether you call it crypto, assets, currencies, or whatever … that is clearly shaking the system."

And at least a year before that, Lagarde had already decided that those currencies (or "whatever") needed to be regulated. In a March 2018 blog post for the IMF, she argued that crypto-assets threaten financial stability:

"The rapid growth of crypto-assets, the extreme volatility in their traded prices, and their ill-defined connections to the traditional financial world could easily create new vulnerabilities. So, we need to develop regulatory frameworks to meet an evolving challenge."

Still, the IMF is not the ECB, though both have a role in safeguarding financial stability. To what extent Lagarde sees regulating cryptocurrency as part of the ECB's mission won't be fully known until after she takes over as president November 1. 

But the early money is for a hands-on approach. At the Singapore Fintech Festival, she urged central banks to consider issuing digital currencies themselves, stating, "There may be a role for the state to supply money to the digital economy."

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