Key Points
- The European Central Bank (ECB) prefers gold over Bitcoin as a strategic reserve asset.
- ECB President Christine Lagarde dismisses Bitcoin’s potential as a reliable store of value.
The ECB is at the center of a heated debate regarding the adoption of Bitcoin by nation-states as a method to bolster their asset reserves. A growing number of central banks, including the US Federal Reserve, are exploring ways to fortify their balance sheets in an effort to offset their surging national debts.
Bitcoin as a Strategic Reserve
El Salvador has demonstrated that a country can fulfill its obligations and draw in more foreign investment by adopting Bitcoin as a strategic reserve. Several US states, including Texas, Ohio, Florida, and Massachusetts, have proposed establishing a strategic Bitcoin reserve.
ECB President Christine Lagarde, while addressing reporters after a monthly monetary policy meeting, downplayed the possibility of Bitcoin being included in the reserves of the union’s central banks. Despite the stagnation of the European economy in the fourth quarter, Lagarde emphasized that the ECB’s Governing Council would not approve the inclusion of Bitcoin as a strategic reserve asset.
Lagarde explained that Bitcoin does not fulfill all the necessary criteria for an asset to be considered a reserve asset. Since its establishment in 1998, the ECB has favored assets perceived as highly liquid, secure, and free from potential money laundering risks.
Gold Over Bitcoin
Lagarde stated, “Reserves have to be liquid, secure, safe, and they should not be plagued by money laundering or other criminal activities.” Consequently, the ECB has heavily favored gold as a reserve asset, recently increasing its gold share in the foreign reserve from 15 percent to nearly 35 percent of its total assets.
The ongoing debate about whether Bitcoin is a safer haven than Gold has been fueled by the growing demand for Bitcoin by institutional investors. While the price of Gold recently hit a new all-time high of approximately $2,798, Bitcoin’s price has been fluctuating between $106k and $91.7k over the past two months.
Despite this, Bitcoin has outperformed Gold in terms of return on investment in the long run, persuading more countries to consider Bitcoin as a strategic reserve. However, the ECB has taken a different stance from the United States by not adopting Bitcoin as a strategic reserve, a move that experts believe will significantly disadvantage the bloc in the near future.
Lagarde anticipates the economy will remain weak in the short term, despite a 25 basis point cut in interest rates to 2.75 percent.
