Germany’s Finance Minister Expresses Doubts On Cryptocurrencies Replacing Fiat In Near Future

Olaf Scholz, the Finance Minister of Germany, has expressed doubt about the capacity for cryptocurrencies to replace traditional fiat currencies.

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Olaf Scholz, the Finance Minister of Germany, has expressed doubt about the capacity for cryptocurrencies to replace traditional fiat currencies.

Scholz made the remarks as part of the “citizen’s dialogue” held at the German-Dutch Army Corps in Münster.

“Whether that has a perspective as a currency model, I would doubt today,” said Scholz.

The minister took issue with the increased use of digital currencies and the enthusiasm they are causing, comparing it to the Tulip mania, saying that there was great danger of crypto turning out to be a very great “tulip inflation.”

Tulip Inflation refers to the 17th-century financial bubble which occurred in the Netherlands when the prices of a tulip bulb rose exponentially before crashing in what is now widely regarded as among the very first financial bubble.

Commenting on the current crypto situation, Scholz said that for the chances of Bitcoin or any other crypto replacing fiat currencies were slim due to the technological and computational demands.

He suggested that it won’t be possible because of a lack of adequate computational processes required to facilitate mass adoption of crypto. These needs have been found to be extremely expensive and have become energy-intensive to a point where large-scale implementation seems unfeasible.

For this reason, the minister believes that digital currencies cannot master the drive needed to replace traditional fiat currencies like the dollar.

He did not just think it is unlikely for crypto to become used as world currencies; he also believes they would pose greater risks.

Scholz said that there is a high chance these virtual currencies are increasingly finding use in illegal activities. For that matter, he urged financial and market regulators to tighten their scrutiny of the sector.

In a narrative that has shadowed cryptocurrencies, the minister pointed out the possibility for digital currencies to be used in illicit activities, including money laundering and terrorist financing. According to him, the decentralized network and nature of cryptocurrency transactions may make it easy for illegal activities.

He went to emphasize that:

“…we do not believe that they already have an economically significant importance today.”

The concerns about crypto risks have seen European legislators hold several meetings in the last few months. The main agenda of the meetings has been to address the security concerns these crypto assets pose and the potential remedies to protect the public.

Earlier this September, the European Parliament met and deliberated on the need for increased regulatory oversight, especially for Initial Coin Offerings (ICOs).

Although the ICO is an essential tool for startups looking to raise funds, it has some concerns that need the European bloc legislators’ attention.

On September 8, Bruegel, a Belgium think-tank, presented a report to the European Finance Ministers in which they urged the EU to adopt a common approach towards crypto regulations of the ICO industry as well as towards exchanges.

The report noted that although national entities can handle regulations, a standard “regulatory arbitrage” will help to mitigate against potential risks.

The European Commission Vice-President Valdis Dombrovskis noted earlier on that cryptocurrency was “here to stay,” but emphasized that the industry needed further regulations. Dombrovskis was speaking at the Economic and Financial Affairs Council held in Vienna.

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