Unbacked Crypto Is a Ponzi Scheme

The governor of Ireland’s central bank, Gabriel Makhlouf, has referred to aspects of crypto as a “Ponzi scheme.” Regulators worldwide are cracking down on digital currencies. But Makhlouf’s new blog post features one of the most sharply worded warnings to date.

The top official of the Central Bank of Ireland has described “unbacked” crypto as akin to a Ponzi scheme in a new blog post. Gabriel Makhlouf, who has held the position since 2019, was blunt about the risks.

Central Bank Worried

“My view is that the claimed benefits of ‘unbacked crypto’ should be treated with a large dose of scepticism,” Makhlouf said. “The purchase of such products can be similar to purchasing a lottery ticket: you might win but you probably won’t.  And describing it as ‘investment‘ is, needless to say, an abuse of the word; ‘Ponzi schemes’ might be more accurate.”

Although, Makhlouf said the central bank drew a line between backed and unbacked crypto. He suggested the bank would be open to backed crypto, such as Electronic Money Tokens (EMTs) or Asset Reference Tokens (ARTs).

The official argued that there was an “urgent need for policy action” across the EU to protect consumers.

After an international competition for the role, Makhlouf was the only candidate forwarded to the Government of Ireland. However, in July 2019, The Irish Times reported that the European Central Bank had expressed reservations to the Irish government about Makhlouf. 

Among these concerns was his lack of economic background and his British citizenship. Makhlouf had previously served as private secretary to then British Chancellor of the Exchequer Gordon Brown. It’s worth noting that the role of private secretary is a civil service position rather than a political appointment.

In his post, Maklouf went on to say that the Central Bank of Ireland remains concerned about “consumer harm.” 

He continued: “And, in particular, discourages the marketing of crypto to the public.”

However, “crypto is not going away very soon,” conceded the central bank governor, adding there is no basis for treating it differently from other financial markets.


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