A top central banker warns crypto’s accelerating fusion with traditional finance could unleash market turmoil, damage trust in banks, and jeopardize control over sovereign monetary systems.
Central Banker Cautions: Misunderstood Crypto May Trigger Market Fallout
Bank of Italy Governor Fabio Panetta, who served on the European Central Bank (ECB)’s Executive Board from 2020 to 2023, issued a strong caution on the expanding influence of crypto assets during his concluding remarks at the bank’s 2024 Annual Report presentation in Rome on May 30.
Addressing the accelerating integration between digital assets and traditional financial institutions, Panetta stated: “The link between the world of crypto-assets and the financial system are growing ever stronger at international level.” He cited rising collaboration between banks and crypto firms, bitcoin holdings by major U.S. companies, and the presence of bitcoin-focused exchange-traded funds (ETFs) as evidence of deepening ties that could heighten systemic exposure.
Panetta made clear that these developments are not without consequences: “These developments have implications for risk.” He expressed particular concern over the reputational impact for banks that engage in crypto-related services, stating: “The risks that stem from this sector will have to be monitored carefully, especially the reputational risks linked to the provision of crypto-assets by banks.” The central banker added:
There is a concern that crypto-asset holders might not fully understand their nature and conflate them with traditional banking products, with potentially negative repercussions for confidence in the credit system should losses occur.
He also warned that stablecoins, if advanced by large technology platforms, could crowd out domestic payment systems, threatening monetary sovereignty and personal data protection.
Despite outlining these dangers, Panetta argued that innovation must be met with equally adaptive solutions. He dismissed the notion that regulations alone would suffice to steer the crypto sector safely, asserting:
But we would be remiss to think that the evolution of crypto-assets can be controlled only through rules and restrictions.
“What is needed is a response that matches the ongoing technological transformation, one capable of meeting the demand for secure, efficient and accessible digital payment instruments, all while preserving the role of central bank money. The digital euro project stems precisely from this need,” he said. The Bank of Italy governor concluded that while the European Union’s Markets in Crypto-Assets Regulation (MiCAR) provides critical safeguards, greater international coordination remains necessary to prevent regulatory loopholes and cross-border failures.
Source: Bitcoin
