Five of Europe’s biggest economies are urging the European Commission to enforce strict regulations for stablecoins—in the surest sign yet that Facebook’s embattled Libra project isn’t out of the woods despite drastic changes.
Finance ministers from Germany, France, Italy, Spain, and the Netherlands want such crypto assets to be barred from operating in the trading bloc until legal and regulatory issues are ironed out, amid fears that they could jeopardize the continent’s economy.
It seems their proposals would have serious teeth. They want projects that fall afoul of their rules to be banned from Europe altogether—and, in a development that further complicates Mark Zuckerberg’s plans, they called for stablecoin issuers to be registered in the European Union, too. (The not-for-profit Libra Association is based in Geneva, Switzerland, a country that isn’t a part of the EU.)
After registering in the trading bloc, projects such as Libra would be obliged to maintain a 1:1 ratio with fiat currency for every unit of stablecoin issued—and these funds would have to be deposited with an EU-approved institution.
Central bankers in Europe and the U.S. have made little effort to disguise their contempt for Libra, amid fears the digital asset could threaten the power of the dollar, make it harder for central bankers to fight economic downturns, and be used for money laundering. They’re also not wild about Facebook, a company that isn’t a stranger to privacy scandals, being in charge.
The five countries issued their statement on the sidelines of a conference in Berlin. During the event, Banque de France Governor François Villeroy de Galhau warned stablecoins could compete with central banks—even though they “do not offer the same guarantees in terms of credit risk, liquidity, service continuity, and neutrality.”
Fighting talk
The latest intervention comes as the European Commission prepares to release regulatory proposals concerning stablecoins later this month.
“We all agree that it’s our task to keep financial markets stable and to ensure that what is a task for states remains a task for states,” German Finance Minister Olaf Scholz told reporters.
French Finance Minister Bruno Le Maire echoed these remarks—and warned that the commission must issue “very strong and very clear rules to avoid the misuse of cryptocurrencies for terrorist activities or money laundering.” He added:
“The central bank, I mean the ECB, is the only one to be allowed to issue a currency. And this point, it’s something that cannot be jeopardized or weakened by any kind of project including the so-called Libra project.”
Meanwhile, the Spanish Finance Minister Nadia Calviño even took issue with referring to Libra as a “stablecoin”—insisting that it is more accurate to call it a crypto asset.
The joint statement shows that, in the eyes of top European officials, Libra hasn’t done enough to prove that it can be trusted if it launches a stablecoin that has the potential to be used by millions, if not billions, of people.
That’s despite the fact that, back in April, the Libra Association embarked on a radical overhaul—watering down its proposals in an attempt to appease regulators. It said “key items of feedback” were acted upon in a rewritten white paper—meaning single-currency stablecoins (such as LibraUSD and LibraEUR) would be offered alongside the originally conceived, multi-currency Libra payment token. Plans for a “permissionless” system where no single entity would enjoy control of the stablecoin have also fallen by the wayside.
The race is on
During his speech on Sept. 11, Villeroy de Galhau said Europe must acknowledge that there are “inefficiencies” in current payment systems—and conceded that innovation is needed to help address them. He said:
“Let me be clear: we cannot allow ourselves to lag behind on CBDC. That may mean that we create if necessary a retail CBDC, in order to ensure the accessibility of central bank money for the general public, in particular in countries where the use of cash in payments is declining.”
A few days ago, a German think tank had this message for European officials: hurry up.
According to the report by dGen, the euro will be overtaken by the digital yuan unless Europe launches a CBDC within five years.
“The euro, while quite strong now, cannot bet on its global relevance in the future,” author Edwin Kinoti wrote.
The joint statement by these five finance ministers—urging the European Commission to slam the brakes on the development of private stablecoins—could buy the trading bloc some much-needed time as it tries to catch up with the likes of Facebook… and Beijing.
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