ECB director Mersch warns: No bitcoin bailout

Yves Mersch, European Central Bank Governing Board member, warns this week about the impact of Bitcoin and other cryptocurrencies should established financial institutions continue to engage in volatile lead cryptocurrency dealings. In an interview with Börsen-Zeitung he said that this could carry extreme dangers for international financial systems. In the event of a future crash, he said there should be no ECB bailout. While ECB President Mario Draghi continues to remain in diplomatic silence with regard to concrete assessments of the growing importance of Bitcoin, the ECB remains in a wait-and-see mood with no action taken.

While Mario Draghi lingers in the background, ECB director Yves Mersch warned against the dangers of Bitcoin last month as part of the Bitcoin IPO in an interview with Börsen-Zeitung published this week. Although its trade volume with an estimated turnover of 250 - 350 billion euros is too small for concrete monetary interventions, nevertheless it concerns it "a speculative hype, which can cause a worry", so Mersch.

Aside from private investor losses, he highlighted the dangers to the financial system should the cryptocurrency business continue to be established among banks and other conventional financial services providers.

"But what worries me most is [...] when financial market infrastructures like stock exchanges go into this business. This poses great risks to financial stability ",

said the 68-year-old Luxembourger.

If the banking system gets into trouble in the future, perhaps because of a Bitcoin crash, there will be no support from the ECB.

"[...] There will again be calls for ECB support. I would like to say from the beginning: We should not do that ",

Mersch promises.

The echo from Frankfurt
While ECB President Draghi and Director Benoît Cœuré emphasized in November that Bitcoin was not yet a "monetary risk" and that it would not have the power to act anyway, Council Member Ewald Nowotny had recently brought potential regulatory initiatives into play, thereby making the ECB action crowded.

Mersch itself had warned in December, especially against the competitive effects of crypto currencies for the banking business or about card-based payment methods. To stay competitive with regard to Blockchain instant payments, commercial banks should also introduce instant payment methods, Mersch said.

In wait-and-see attitude
What may initially seem like disagreement in the Frankfurt offices is rather to be seen as a strategic calculation by the ECB. Similar to other central bankers around the globe, Mersch, Cœuré and Nowotny can indeed warn and critically evaluate at this time. President Draghi does this, must follow a signal from the ECB. Such ECB intervention would not only be a regulatory novelty on EU territory - it would also have a domino effect beyond European latitudes and euro member states. The official stance of the ECB is set at this time awaiting, but underlying political attitudes can be guessed, as this week.