06.12.2021

Isabelle Schnabel explains why Bitcoin cannot be considered money

Isabelle Schnabel, a member of the Executive Council of the European Central Bank (ECB), described Bitcoin as a speculative asset that does not meet the definition of money.

In an interview with Der Spiegel, Schnabel noted that “Bitcoin does not have the basic features that national currencies have.” In her opinion, the first cryptocurrency is a “speculative asset without any fundamental value”, which is highly prone to huge price fluctuations.

By tradition, let’s start with an explanation. The networks of the most popular cryptocurrencies at the moment – Bitcoin and Ethereum – have been operating since 2009 and 2015, respectively. That is, the technology of blockchain and coins based on them is very young, and this causes distrust from analysts, officials and bankers.

However, over time, the situation is changing for the better. As an illustration of this, one can cite the statements of experts from Goldman Sachs. In May 2020, they stated that Bitcoin is not an asset class. Although at the beginning of April 2021 it became known that the banking giant would offer its clients to invest in Bitcoin and other digital assets.

In addition, on the eve of the bank’s analysts shared the rating of assets that showed the best profitability results. And the first place in it was taken by Bitcoin – both in terms of overall profitability and in terms of profitability adjusted for risk.

That is, now the situation around blockchain assets is getting better, and their adoption around the world is intensifying. However, representatives of central banks still cannot come to terms with the idea of ​​digital money, the issuers of which are not they, but the rules spelled out in computer code.

What bankers think of Bitcoin

When asked if the fact that many people trust Bitcoin could harm national currencies like the euro, Schnabel said she was more worried about “a sharp drop in confidence in cryptocurrencies in the future.” In her opinion, since Bitcoin is “a very fragile system”, its collapse could lead to disruptions in financial markets.

The expert also rejected the assertion that conventional currencies do not have any intrinsic value. Here is her line in which she shares her attitude to the situation. The quote is from Decrypt.

The euro is backed by the highly trusted European Central Bank. And it’s legal tender. Nobody can refuse to accept the euro. Bitcoin is another matter entirely.

That is, the representative of the ECB believes that faith in the euro on the part of the bank is enough to assert that the currency can be trusted. In addition, this currency will definitely be accepted on the territory of the euro, while this scheme will not work with Bitcoin.

We believe that the lack of an opportunity to pay in BTC for any product in any store – including in Europe – does not mean distrust of cryptocurrencies on the part of outlets’ owners and unwillingness to work with them. It’s just that this asset class is too young, so most people simply didn’t have time to understand the principles of the blockchain and the coins on them. So in the future, the situation will change for the better, and the cryptocurrency will become more demanded and popular. This became especially obvious after the announcement of Tesla’s management about their readiness to accept BTC as a means of payment for their cars.

Schnabel’s words echo in many ways earlier statements by ECB President Christine Lagarde. As a reminder, the latter said last year that Bitcoin and other cryptocurrencies pose risks, “relying solely on technology and the mistaken concept of the absence of an identifiable issuer.” Lagarde also criticized private stablecoins, which, if widespread, “could threaten financial stability and monetary sovereignty.”

The ECB is still considering the possibility of introducing a digital euro, which could supplement cash, but according to Schnabel, the organization does not yet have a clear position on this issue. Even if the idea is supported, it will take at least four years to develop a digital currency. Lagarde herself spoke about this earlier.

We believe that the position of the central bankers is quite predictable. Obviously, employees of a financial institution will not support the idea of ​​decentralization and independent blockchain-based assets – at least openly. Still, this would seriously hurt the reputation of banks that act as intermediaries between participants in transactions. Recall that it is the intermediaries that are removed by the cryptocurrency networks.

Therefore, the point of view of the bankers in this case is unlikely to be different. And here we can only rejoice at the fact of the popularity of cryptocurrencies, which are actively attracting the attention of representatives of the old financial system.

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