Amid Looming Euro Zone Economic Downturn, ECB's Lagarde Worries About Crypto, DeFi

Christine Lagarde. Source: a video screenshot, Reuters / YouTube

 

While the 19 euro-using European Union countries face a gloomy economic outlook, European decision-makers are worried about the potential negative impact of cryptoassets and decentralized finance (DeFi) on the bloc’s financial stability -- and per Christine Lagarde, President of the European Central Bank (ECB), they should intensify their work on a controversial regulation draft.

“Euro area activity is being dampened by high energy costs, intensified supply disruptions, and greater uncertainty which affects the manufacturing sector in particular,” Lagarde told EU lawmakers in a video released by Reuters.

At the same time, Lagarde seems to be worried about the risks posed by non-legacy finance to the EU’s financial stability and is looking forward to the implementation of the proposed Markets in Crypto-assets (MiCA) Regulation that is to provide a legal framework for cryptoasset markets for the bloc’s 27 member states. 

“We believe, as we are embarking on this work concerning crypto assets and the risk that they pose, that crypto assets and decentralized finance have the potential to pose real risk to financial stability,” she said.

This risk would be particularly robust “if the rapid growth of crypto asset markets and services continued in their interconnectedness with both the financial sector and the broader economy,” according to Lagarde.

“The ESRB general board supports the need for a quick adoption and implementation” of the MiCA, the president said, referring to the EU’s financial supervision body, the European Systemic Risk Board, which comprises representatives of the ECB, governors of member state central banks, and other key officials.

Among some of its proposed provisions, MiCA’s draft proposes extending the EU’s supervision over so-called 'unhosted wallets' in what many industry representatives have called a disproportionate and harmful measure that could hamper the crypto industry’s development in Europe.

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