In the last few years, cryptocurrency projects have increasingly been in the limelight. But, with more Big Tech firms getting involved in these projects, the European Central Bank has issued fresh warnings over the potential risks.
As the EU considers launching its own cryptocurrency, the digital euro, the ECB has warned that more digital currencies from private companies could harm competition and citizens’ privacy. And it could “endanger monetary sovereignty.”
Although the digital euro could reduce some of these risks, there are still concerns. According to an ECB board member, big tech firms “are seeking to sidestep traditional distribution networks including payment systems through their control of social media.”
Facebook has postponed its digital currency “Diem,” which has now been rebranded as Libra and was due to be launched in the coming months.
Regulators had raised their concerns over this currency and the financial impact it could have. There are also fears over privacy and the misuse of personal information, particularly in light of Facebook’s poor reputation in protecting its users’ data.
In addition to this, the ECB said that cryptocurrencies could be a risk to the stability of the financial markets. Many tech companies already have a large database of consumers that they could tap into. This could lead to a rapid expansion of the industry.
However, the digital euro is due to be expanded later in the year. This project is, according to the ECB, less risky than other cryptocurrencies and would bring benefits. It’s more convenient and removes many of the restraints whilst still being tied into the central banking system.
“Such a project would answer key design and technical questions and provide the ECB with the necessary tools to stand ready to issue a digital euro if such a decision is taken,” said a joint statement from the ECB and the Commission.
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