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ECB wants banks to segregate any virtual currency business

FILE PHOTO: The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - Banks should ring-fence any business they do with virtual currency (VC) such as Bitcoin and post “adequate” amounts of capital against it, a European Central Bank board member said on Monday.

Yves Mersch said cryptocurrencies, online tokens issued by private companies with the help of users, do not qualify as money and called for regulating their issuers, exchanges and any bank or clearing house dealing in them.

“Due to the high volatility of VCs it might seem appropriate to require any VC trading to be backed by adequate levels of capital, and segregated from other trading and investment activities,” Mersch told a conference in Turkey.

Euro zone banks, which are supervised by the ECB, have so far steered clear of cryptocurrencies but U.S. giant Goldman Sachs has announced it would open a Bitcoin trading operation this year.

Mersch said this market was so far too small to endanger financial stability with a $432 billion capitalization at its peak in early 2018 - before a sharp fall in the price of Bitcoin.

But he cautioned this could change and virtual currencies could pose a risk particularly if they were used as collateral for bank loans or for settling trades at a clearing house.

“There’s a need to examine whether any VC activity carried out by FMIs (financial market infrastructures) should have to be ring-fenced,” Mersch said.

Reporting By Francesco Canepa; Editing by Balazs Koranyi and Matthew Mpoke Bigg