Christine Lagarde has insisted that a digital euro would be a complement to cash rather than a substitute for it—and may not spell doom for the Facebook-founded Libra stablecoin project.
Speaking in Frankfurt on Sep. 21, the European Central Bank president confirmed that the trading bloc is actively exploring “the benefits, risks and operational challenges” associated with launching a central bank digital currency (CBDC)—but made it clear that it won’t be at the expense of banknotes, either.
And in the biggest hint yet that the ECB is open to the idea of welcoming a project like Libra—subject to regulatory compliance, of course—Lagarde said a digital euro “could provide an alternative to private digital currencies and ensure that sovereign money remains at the core of European payment systems.”
During her remarks to the Franco-German Parliamentary Assembly, Lagarde also warned that the coronavirus pandemic could accelerate the economy’s digitization and said this transition must be executed with great care.
“We need to fully reap the potential gains from digital technologies and, at the same time, make sure labour markets remain inclusive,” the former International Monetary Fund chair said. “If we don’t, we risk creating a new divide, and we can already see gaps opening up when we look at differences in wages, education levels and gender.”
Libra and friends
Lagarde’s comments come a few days after the EU confirmed that it will have comprehensive rules governing the use of cryptocurrencies and stablecoins by 2024.
The trading bloc wants to make it faster, easier and less expensive to use digital assets throughout the eurozone by providing a regime of “same risk, same rules, same regulation.”
Over time, it’s hoped that this will encourage a wide range of services and competitors.
This shift in attitudes doesn’t mean that the likes of Facebook’s Libra will be given carte blanche to operate with complete freedom—indeed, quite the opposite.
Earlier this month, finance ministers from Germany, France, Italy, Spain and the Netherlands said stablecoin projects should be banned from the continent altogether if they fall afoul of the eurozone’s rules. They also demanded that these ventures must be registered in the EU, which could be a sticking point for the Switzerland-based Libra Association.
Lagarde may not be singing from the same hymn sheet as French Finance Minister Bruno Le Maire, who maintains that the ECB should be the only organization that is allowed to issue a cryptocurrency.
“It’s something that cannot be jeopardized or weakened by any kind of project including the so-called Libra project,” he recently said.
Laying down the law
The European Commission is due to unveil its cryptocurrency framework later this month, but a leaked version obtained by Coindesk suggests that crypto could end up being treated like any other regulated financial instrument. This document mainly focuses on stablecoins—and although it could deliver much-needed legal clarity for investors and fintech firms, it’s likely that gray areas will remain for the burgeoning decentralized finance sector.