european central bank

Christine Lagarde Announced EUR 750 Billion Bond Buyback, Bitcoin Surged 10%

Since Mar 7, 2020, the crypto market has witnessed some of the worst days ever since its inception with market capitalization losing more than $140 billion in a week span. In our previous article, we analyzed how the fluctuation in the oil market and the coronavirus outbreak have made a major contribution in this bear market.

One of the worst hits in the bearish market was Bitcoin. which faced a nose crushing fall of more than 40% in 5 days with the price falling down from USD 9,120 to USD 3,500 before jumping back to USD 5100 by Mar 17, 2020.

For the last 3 days, the Bitcoin price fluctuation was stable hovering in the range of $5100 to $5300. In the last 24 hours, however, Bitcoin has witnessed a surge in its price and is currently touching a $6,000 mark.

Bitcoin Price on 19 Mar 2020

Source: CoinMarketCap

The surge in the price has come around the time when the European Central Bank (ECB) announced to launch a €750 Billion Pandemic Emergency Purchase Programme (PEPP) on Mar 19, 2020. The buyback of the bond aims to stimulate the European economy amidst the lockdown due to the Covid-19 outbreak.

“Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.”
ECB President Christine Lagarde

Not many analysts were expecting such an upward movement in the Bitcoin price charts. In our previous article, we mentioned how Peter Brandt predicted that Bitcoin’s price could go as low as $1,000.

ECB President Christine Lagarde went on the record and said that the bond purchase will continue until the ‘crisis phase’ of Coronavirus pandemic is over.

Image via amp.thenational.ae

Dutch Central Bank Forces Crypto Firms to Register Within Two Weeks or Face Cease and Desist

The Dutch Central Bank, De Nederlandsche Bank (DNB) has announced that crypto companies must register with the authority by May 18, or to stop operating immediately.

DNB has enforced the Dutch anti-money laundering (AML) laws, which was passed by the Dutch Parliament in April to comply with the Fourth Anti-Money Laundering Directive (AMLD4) laws. The Dutch AML laws are in compliance with the Financial Action Task Force-recommended AML directives and standards.

The AMLD4 laws were amended on April 21 by the Dutch Upper House, which states that firms that offer services to convert crypto and fiat, and crypto custody services must cease and desist if they do not register with the central bank by the deadline. The report did not make it clear regarding why the Dutch Central Bank decided to cite the European’s AMLD4, rather than the most recent directive, the AMLD5.

A draft application could be sufficient to fulfill the registration requirements by May 18, according to DNB’s announcement. The tight two-week notice may have been implemented due to the fact that the Dutch Parliament did not strengthen its AML laws until April 21, although the EU released its fifth EU AMLD in September last year, and all EU members had until early January to implement the directive.

Dutch central bank aims to play a leading role in developing CBDC in Europe

DNB made an announcement in its bulletin, saying that it aims to become the world leader in the development of central bank digital currencies (CBDCs). The report highlighted that the topic of CBDC has gained more public exposure in the Netherlands than in “several other euro area countries for several reasons.”

The Dutch central bank has a positive outlook on CBDCs, as it believes that central bank money is essential to preserve as it is important for people to maintain essential trust in the monetary system.

The European Central Bank (ECB) previously expressed its interest in launching a digital Euro and stated that they have been doing theoretical research and practical experimentation. The report stated that the Netherlands could be a suitable testing ground for its testing. Even after evaluating the potential risks of CBDCs, the Dutch central bank said, “We are ready to play a leading role.”

The central bank emphasized that the use of cash is declining in the country, signaling that its citizens are using less central bank-issued currency for purchases. A CBDC could potentially allow more diversity in the payments market, as well as making cross-border payments to be more efficient, according to the central bank.

ECB encourages a robust regulatory structure for stablecoins

The European Central Bank (ECB) published an in-depth report on global stablecoins, focusing on highlighting the requirement for clear regulatory parameters for stablecoins, and the risks it may pose to financial stability. The ECB suggests that a “robust regulatory framework” must be established to address risks before its benefits could be explored.

The ECB recognizes that stablecoins could potentially improve the efficiency of the financial sector and access to financial services across the globe. Comparing stablecoins to cryptocurrencies such as Bitcoin, stablecoins could provide an alternative to volatile cryptocurrencies. The report stated, “A typical stablecoin arrangement (made up of the coin itself and the associated transfer platform and ancillary functions) seeks to reduce price volatility by anchoring the coin to a “safe” low-volatility reference asset or basket of assets.

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Bitcoin Price as Likely as Gold to Rally Higher, Investors Await ECB Policy Meeting Outcome

Bitcoin is now more closely correlated to safe haven asset gold than ever, which enables the world’s largest cryptocurrency to be able to combat risk aversion in the traditional markets.

Gold prices have been rallying higher this week, rebounding from the recent support level and has been moving higher as riskier assets including equities also rose. The recent Brexit fallout between the United Kingdom and the European Union has also incentivized investors to turn to safe-haven assets such as gold.

Although gold has been considered to be a safe haven asset, gold has recently seen gains despite a stronger dollar. The next move in the market, according to investors, will depend on the outcome of a policy decision by the European Central Bank (ECB). Investors will see the outcome of inflation forecasts of the ECB and growth projections. Ahead of the announcement of the outcome, Bob Haberkorn, senior market strategist at RJO Futures said:

“We are seeing some cracks in the dollar after the European Central Bank painted a little bit of a rosy picture and gold is moving higher on that.”

The ECB policy meeting will be held later today, while the US Federal Reserve’s next meeting is expected next week. Edward Meir, analyst at ED&F Man Capital Markets commented:

“All the central banks are in the same boat. They will have to keep printing money, keep easing policy, in order to fight the slump we are in and that will keep gold supported.”

The recent news of the delay of the AstraZeneca’s experimental COVID-19 vaccine has also been supportive of gold, signaling that the pandemic is nowhere near its end. Ole Hansen, Saxo Bank analyst also stated that this could be a prolonged economic slowdown and further expectations of fiscal stimulus.

According to Bloomberg’s records, the correlation between Bitcoin and gold is now at its highest level since 2010. During the current unprecedented economic turmoil, investors have fled to safe haven assets, such as gold. With the injection of fiat currencies due to recent economic stimulus, investors may look to hedge in alternative assets. This could be a possible explanation for the record-high correlation between Bitcoin (BTC) and gold.

Bitcoin’s bull market has recently retraced and has witnessed several crashes. According to Bloomberg’s crypto report, a Bitcoin base for recovery is firmer, although the broader cryptocurrency market has been driven by speculative excesses.

Bitcoin’s price reached a yearly high of $12,400 before shortly plummeting through the $11,000 support level. Bitcoin is currently trading at the $10,300 level at press time, holding above the $10,000 line. Although Bitcoin traded below the $10,000 support level recently, the BTC price has made a recovery. According to Bloomberg, the $10,000 level seems to be the new support level for Bitcoin, which was an old resistance level.

European Central Bank Assesses Potential Digital Euro CBDC Issuance

The European Central Bank (ECB) has been looking into central bank digital currency issuance for quite some time and evaluating whether a digital euro would be a beneficial addition to its financial system.

Reasons for a CBDC issuance

A report assessing the implementations behind a potential central bank digital currency (CBDC) issuance was recently released by the European Central Bank. The report detailed that for a digital euro to thrive, it must comply with the existent financial regulations of the Eurosystem and provide more financial accessibility and efficiency in an increasingly digital age.

The report read:

“A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money in the fast-changing digital world. This would support Europe’s drive towards continued innovation. It would also contribute to its strategic autonomy by providing an alternative to foreign payment providers for fast and efficient payments in Europe and beyond.”

A potential digital currency issuance could enhance the digitalization of the European economy and be introduced in response to a decline of cash payments, according to the report.

In addition, as the pandemic has changed consumer behavior globally, increased adoption of digital payments caused by social distancing should also be taken into consideration. Therefore, a digital currency for contactless payments could be attractive to consumers. The report read:

“Consumers may even perceive cash to be a vector of infection […] They might therefore become less willing to use cash and more inclined to use contactless and online payments.”

The report depicted that there were still many questions to be answered before a research and development phase could be implemented by the European Central Bank.

Requirements for future CBDC

Before a CBDC could be launched, several key requirements were detailed by the ECB. Based on the report, the digital euro must be in stride with current technology, “be available through the entire euro area and be interoperable with private payment solutions.” The digital currency must possess cash-like features and “provide functionalities that are at least as attractive as those of payment solutions in foreign currencies;” It must also be a tool for improving monetary policy transmission.

A digital euro must “improve the overall resilience of the payment system” and be accessible outside of the Eurozone, all the while remaining consistent with Eurosystem standards. A potential digital currency should provide offline payment alternatives, as well as be free of charge, secure and have a strong European branding; it must also comply with the Eurosystem landscape and provide more financial accessibility.

If a digital euro was to be launched, it must be available outside the Eurozone as well, be secure, cost-efficient, and run on environment-friendly technology aimed at minimizing one’s ecological footprint.

Next experimentation phase to start in 2021?

The report released by the European Central Bank provided a comprehensive assessment of what the Eurosystem landscape should expect if a CBDC was to be issued. However, before moving forward with the experimentation phase, the ECB also expressed the importance of taking into consideration stakeholders and citizens’ stances as well on introducing a hypothetical digital currency within society.

If the project is cleared by European financial authorities, the research and development phase of the digital euro may start sometime in mid-2021, led by the High-Level Task Force on CBDC. As per the report, “Towards mid-2021 the Eurosystem will decide whether to launch a digital euro project, which would start with an investigation phase.”

Digital currency to complement fiat

On several occasions, European Central Bank President Christine Lagarde stressed the importance of keeping in stride with the booming digital age. However, she rectified that though Europe may potentially benefit from a digital euro if the central bank decides to go forward with the project, it will most likely complement fiat currency, “it would not replace it.”

German Finance Minister Calls for Speedy Interventions in the Rollout of a Digital Euro

German Finance Minister, Olaf Scholz, sees the digital euro as an ideal apparatus to fill the void triggered by a high demand for digital money from businesses and consumers in Europe. Therefore, he has asked the relevant authorities to speed up the rollout of the European Central Bank (ECB) digital currency.

Simplifying domestic and international payments

Speaking at an online conference on future payments in Europe, Scholz stated:

“On the digital euro, I think we should work very hard. It is nothing where we should wait and see.We should be able to decide at any time that now we should do something with a digital euro.”

The issuance of CBDCs seems to be a race against time because, in the eyes of many nations, owning a CBDC is instrumental in having control of the global markets. Furthermore, CBDCs are touted as game-changers in easing domestic and international payments because transfers will be channeled through the internet and possibly even offline.

Pushing CBDC Adoption

Recently, Russia’s central bank revealed that financial regulators are keeping a keen eye on central bank digital currencies (CBDCs) because they see them as silver linings in the expansion of electronic settlements technologies and e-commerce amid the pandemic.

Scholz echoes these sentiments because he believes digital payments will continue being embraced, and CBDCs can step in with amicable solutions. Nevertheless, the International Monetary Fund (IMF) recently asked central banks not to throw caution to the wind when developing CBDCs because they have to come up with strong legal frameworks for them to work.

CBDCs are digital assets pegged to a real-world asset and backed by the central banks meaning that they represent a claim against the bank exactly the way banknotes work. Furthermore, they are blockchain-enabled, representing a new technology for the issuance of central bank money at the wholesale and retail levels.

European Central Bank Hikes Interest Rates in Surprise Move, Bitcoin Remains Steady

The European Central Bank (ECB) on Thursday raised interest rates by 50 basis points (0.5 percentage points) and therefore brought its deposit rates back to zero from -0.5%. The hike was a surprise move as economists had anticipated a smaller hike of 25 basis points.

The ECB, the central bank of the 19 nations that share the euro currency, increased interest rates for the first time in 11 years, ending the six-year era of the negative interest rate policy (NIRP). Now, the ECB’s deposit rate is at 0%, the main refinancing operations rate stands at 0.5%, and the marginal lending facility is 0.75%.

The ECB signalled more rate hikes ahead as part of efforts to control rampant inflation in the eurozone. The Frankfurt-based central bank’s inflation target is 2%. In June, inflation stood at a record high of 8.6%.

In a statement on Thursday, the ECB said the hike is part of longstanding efforts to prevent inflation from spreading more broadly to European goods and services, “The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalization path than signalled at its previous meeting.”

The central banker further mentioned that the hike “will support the return of inflation to the Governing Council’s medium-term target by strengthening the anchoring of inflation expectations and by ensuring that demand conditions adjust to deliver its inflation target in the medium term.”

ECB President Christine Lagarde justified the larger hike: “Inflation continues to be undesirably high and is expected to remain above our target for some time. The latest data indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond.”

In the past, The ECB had signalled it would be raising rates in July and September as consumer prices continue soaring. But it was unclear how the central bank would initiate the move.

Since 2014, the central bank has kept rates at historic lows in negative territory as it dealt with the region’s sovereign debt crisis and the COVID-19 pandemic.

The ECB’s rate hike comes one month after the U.S. Federal Reserve (Fed) lifted interest rates by 0.75 percentage points, the third hike this year and the largest one since 1994. The Fed’s move aims to tame the fastest inflation pace in over 40 years.

Since the ECB announced a bigger-than-expected interest rate rise at 12:15 UTC (Coordinated Universal Time), Bitcoin, the flagship cryptocurrency, has held its price steady at around $22,700. Bitcoin is currently trading at $23,125.74 at the time of writing at 20:29 EAT (Eastern Africa Time). The euro (EUR), the official currency of 19 member states of the European Union, rose 0.7% relative to the U.S. dollar from $1.0198 to $1.0257.

ECB Publishes New Guideline on Regulated Digital Asset Licensing

The European Central Bank (ECB) has issued new licensing guidelines for regulating digital assets, although it currently does not have a unified regulatory framework governing crypto-asset activities and services.

ECB stands for European Central Bank, the central bank of the 19 European Union countries that have adopted the Euro.

The ECB’s banking regulator noted that the ECB is taking steps to harmonize its assessment of licensing applications as “national frameworks governing crypto-assets vary widely.”

The Presidency of the Council and the European Parliament recently reached an interim agreement on the proposals of Markets in Crypto Assets (MiCA).

The agreement requires crypto assets to be placed under a regulatory framework. It uses the Capital Requirements Directive criteria, which has been in effect since 2013, to evaluate licensing applications for crypto-related activities and services.

The ECB proposes that the AML/CFT risk profile will be analyzed as several characteristics of crypto assets, such as their lack of intrinsic economic value or reference assets, make them vulnerable to money laundering.

The report states that crypto companies will be assessed accordingly for their licensing from their business models, internal governance and “fit and proper”.

Due to unique characteristics of crypto assets, such as programmability, the ECB report details that:

“The higher the complexity or relevance of the crypto business, the higher the level of knowledge and experience in the field of crypto should be. Senior managers or board members with relevant IT knowledge and chief risk officers with robust experience in this area are important safeguards.”

Overall, the publication is evidence of how the ECB, among global regulators, aims to present its regulatory activities related to the crypto ecosystem. With the Markets in Crypto Assets (MiCA) Act under active consideration, many believe this year will mark a major shift in European crypto regulation.