yves mersch : virtual currencies ante portas speech by mr yves mersch, member of the executive board of the european central bank, at the 39th meeting of the governor's club of the central asia, black sea region and balkan countries, bodrum, turkey, 14 may 2018. * * * new innovations based on distributed ledger technology ( dlt ) and blockchain have brought about wide - spread euphoria. their use to create “ cryptocurrencies ” or “ virtual currencies ” ( vcs ) – to denote their lack of legal recognition – is often touted as something that could fundamentally change the financial sector. the spectacular rise in the market valuation of vcs over the past year suggests that many people shared this belief. in the course of 2017 the global vc pool both deepened, from usd 30 billion to usd 400 billion, and widened, with the proliferation of “ initial coin offerings ” or “ icos ” – virtual fundraising facilities for start - up investors. 1 but in my view, the subsequent market plunge rather points to a fading fad. from december to february the price of bitcoin, the top dog among vcs, fell from almost usd 20, 000 to below usd 7, 000. don ’ t get me wrong : i am an ardent believer in progress through innovation. technological progress can provide us with significant efficiency gains and increases in general welfare. perhaps dlt and blockchain can do just that2 but i am very sceptical towards the use of these technologies to create currency. although they combine decentralised payments and label them as currency, vcs are still not legitimised by any authority. moreover, vcs rely on financial intermediation via exchanges and wallet providers to reenter the real economy. any fiat money requires trust to gain and maintain the acceptance of those who use it. indeed, history has shown that confidence in public money is best provided by a trusted issuing authority, that is, an independent central bank issuing safe and stable liabilities that people can access and hold. trust in a central bank, in turn, is created and sustained via legal safeguards, a clear price stability mandate and a sufficient degree of democratic accountability. in contrast, nobody is liable for vcs, nor are they backed by any trustworthy authority. under these circumstances, it may well be that vcs will fail, as so many other earlier forms of money did. there are, at present,

policies that support the competitiveness of european smes relate to integration and innovation in the retail payments market, particularly for payments in euro. the establishment of the single euro payments area ( sepa ) has given europe harmonised and efficient payment methods that help facilitate growth for smes. innovative retail payments services such as instant payments, a topic i will further address in a few moments, can free up cash flow and improve liquidity. looking to the future, a strong market infrastructure within a capital markets union moves us closer to a true single market in europe and further integration in the euro area. this is why the eurosystem fully backs the creation of cmu. we welcome the early actions laid out in the commission ’ s action plan and believe sustained effort and an ambitious agenda will be required beyond these initial steps, together with a long - term vision, in order to make full cmu a reality. continuing to look ahead, i would now like to turn to the second initiative i mentioned at the start. bis central bankers ’ speeches initiative 2 : our vision for 2020 this second big initiative currently underway is the eurosystem ’ s vision for 2020 – our strategy for market infrastructure that is to be progressively developed and delivered over the next five years. i would like to briefly outline the three main pillars of the eurosystem ’ s vision for 2020, which summarise what we want to achieve over the next five years in the field of market infrastructure. the first point of action is to explore synergies between target2 and t2s. we will consolidate the technical infrastructure so that target2 can benefit from state - of - the - art features currently available in t2s. we will adapt both platforms to keep up with technological change. the second goal under our vision is to develop a pan - european instant payments solution. digitalisation is changing consumers ’ expectations and people are right to ask themselves why, if they can send an email to the other side of the world in a split second, do they have to wait hours or even days for a bank transfer to go through. it is true that some national solutions have emerged, but they do not have pan - european reach. to prevent silos and closed loop solutions, the eurosystem envisages that instant payment services should be built on three layers : the scheme layer, the clearing layer and the settlement layer. a common scheme for instant payments should harmonise how payment service providers interact with their customers and with other payment service