Breaking: ECB’s Christine Lagarde Wary Of Crypto ‘Free Banking’

Amid growing scope of cryptocurrencies and blockchain based monetary applications, central bankers are increasingly worried. Despite the high volatility and risk involved with digital assets, mainstream institutional investors continue to adopt. Also, there is increasingly more activity into cryptocurrencies from small time investors and retail traders. In this context, there is a renewed sense of urgency in responding to the demand for the new asset class.

Christine Lagarde, president of European Central Bank (ECB), said it’s time to respond to the demand for crypto. Speaking about the crypto ecosystem at a discussion organized by Banque de France on Tuesday, she spoke about the need to support CBDCs. Central bankers would lose out on an opportunity if central bank digital currencies (CBDCs) are not adopted, she added.

Christine Lagarde Warns Of Crypto Free Banking

The ECB chief said central bankers have been operating as a monitoring anchor in relation to the bankers and private money. As central bankers, we risk losing the role of anchor that we have played in many decades, she said, referring to crypto assets. Christine Lagarde said there was a need for active involvement in experimenting and innovating in terms of CBDCs.

Lagarde said there was a possibility of yet another ‘free banking’ period as a result of crypto adoption. She referred to the last free banking era in the 19th century. The change in response is needed to maintain the role of anchor for central banks, she explained.

“We have historical examples of a period where the central bank monetary anchor did not exist. And that precipitated crisis after crisis. That certainly was the case at the time of ‘free banking’ in the 19th century.”

‘Difficult Macroeconomic Scenario Ahead’

In this context, a soaring macroeconomic situation is part of the reason why there has been a increase in crypto investing. At a different event on Monday, Christine Lagarde said 2023 could be a difficult year for the economy. She predicted that the last quarter of 2022 and the first quarter of 2023 will likely be negative. This is a big shift in her previous stance on the situation. Lagarde had last year said there was no forecast for a recession for 2022 or 2023.