Summary
Bruegel Policy Contribution prepared for the European Parliament’s Economic and Monetary Affairs Committee, analyzing whether cryptocurrencies can acquire the role of money and what the implications are for central banks. Concludes that cryptocurrencies currently resemble speculative assets rather than money due to volatility from inelastic supply, but that the risks of wholesale substitution for official currencies are small as long as fiat currencies deliver on their functions.
Key Points
- Money serves as: unit of account, medium of exchange, store of value. Cryptocurrencies have not reliably fulfilled any of these three.
- Primary problem: inelastic supply creates inherent volatility — price swings deter use as medium of exchange.
- Volatility is structural, not just early-stage; it requires protocol changes to fix.
- If cryptocurrencies did succeed as alternatives, parallel currencies would create risks: monetary policy effectiveness, financial stability, growth.
- The probability of widespread substitution is low unless a “deep crisis of trust in official currencies” occurs.
- Prepared for ECB Monetary Dialogue (European Central Bank).
Newsletter Angles
- The “parallel currencies” risk thesis — not that Bitcoin replaces the dollar, but that coexistence of multiple currency systems fragments monetary policy effectiveness. This is relevant to the GENIUS Act stablecoin discussion: private dollar stablecoins as proto-parallel currencies.
- The inelastic supply paradox: Bitcoin’s fixed supply (21M cap) is its feature as a store of value but its flaw as a medium of exchange — the CFR paper and this Bruegel paper reach the same conclusion from different directions.
- “Deep crisis of trust” as the trigger condition: in 2018 this seemed remote; in 2026 (post-pandemic money printing, inflation spike, dedollarization pressure) it seems less hypothetical.
Entities Mentioned
- European Union — context: written for the European Parliament
- Federal Reserve — comparative; ECB is the primary addressee
Concepts Mentioned
- CBDC — implicit; central bank digital currencies as the official response to the cryptocurrency challenge
- Nixon Shock — historical precedent for deep crisis of trust in official currencies triggering monetary change
- Petrodollar System — the existing dollar-denominated system that crypto would need to displace
Quotes
“Cryptocurrencies are arguably falling short against these [money function] criteria. They resemble speculative assets rather than money.”
“The widespread substitution of central bank currency for cryptocurrencies would effectively create parallel currencies. This by itself could create risks to the effectiveness of monetary policy.”
“It would take a deep crisis of trust in official currencies for their widespread substitution by cryptocurrencies to materialise.”
Notes
Academic/policy paper from 2018 — pre-El Salvador, pre-DeFi summer, pre-institutional adoption wave. The theoretical framework remains sound; the empirical context has shifted. Good foundational text for the “can Bitcoin be money?” debate.