European Central Bank's Mersch Says Banks Should 'Segregate' Crypto Trading

European Central Bank board member Yves Mersch has said that banks should "Segregate" their dealings in cryptocurrencies from other activities, Reuters reported May 14.

Reuters quotes Mersch as raising concerns over the high volatility of crypto markets, emphasizing that digital tokens "Do not qualify as money," and that their issuers, as well as dealers, exchanges, banks, or clearing houses, should be regulated.

Mersch reportedly noted that even at its peak market capitalization in January 2018 - which Mersch mistakenly reports as $432 bln rather than the actual $800 bln - the crypto market is still too small to threaten financial stability.

He said however that if cryptocurrencies were to be used as collateral for bank loans or for settling trades at clearing houses, there would be an argument for such activities being "Ring-fenced" from other trading and investments.

As Reuters notes, the European banks regulated by ECB are not currently dealing in crypto.

In the US, investment banking giant Goldman Sachs recently announced it would be opening a crypto trading desk "Within weeks."

ECB's Yves Mersch has been a staunch critic of the increasing interconnection of the traditional financial sector with the cryptocurrency space, saying that cryptocurrencies pose a risk of "Contagion and contamination of the existing financial system" in February this year.

Notwithstanding Mersch's concerns - that are shared by others such as the Bank of International Settlements' Augustín Carstens - the ECB's Chair of the Supervisory Board Daniele Nouy told CNBC in February that future involvement of the ECB in cryptocurrency regulation was likely to be "Very, very low".

In March, ECB and BIS issued a statement on Bitcoin, as well as central bank-issued digital currencies, saying they are "Not the answer to the cashless economy."

ECB has however championed blockchain's potential for transforming securities settlements, against the backdrop of the European Commission's Blockchain Observatory, which aims at "Uniting" the European economy around the technology.