The five member states of the European Union including Germany, France, Italy, Spain and the Netherlands have asked the European Commission to take measures regarding crypto-currencies and stable coins, like Facebook's Libra.
This, in order to protect consumers preserve the sovereignty of states in monetary policy.
Thanks to the blockchain, the scope of finance is expanding and it is now possible to easily transfer and exchange almost any asset. Cryptos are developing rapidly; their price can vary from 10-20% or even 100-200% in just one day. Some investors who are afraid of this volatility have felt the need for a cryptocurrency with a stable price. Hence, the emergence of stable coins, anti-volatility digital assets that replicate the face value of a cash currency. Several stable crypto-currencies have recently arrived on the market such as the Tether (USDT), or MakerDAO's DAI which runs on Ethereum.
The appearance of 'stable coins' often provokes debate as they raise several questions:
- How could they bring to the markets new means of settlement and/or payment device?
- How do they intend to replace the currency-related devices of central and commercial banks?
In addition, the Council and the Commission of the European Union (EU) issued an official communiqué in December 2019 on this subject.
According to this communiqué:
'Stable coins' can offer opportunities for fast and inexpensive payments, especially cross-border payments. At the same time, they pose multiple challenges and risks related, for example, to consumer protection, privacy, taxation, cyber security and operational resilience, money laundering, terrorist financing, market integrity, governance and legal certainty'.
Above all, this poses particular challenges for regulators as the public would likely turn to stable coins and banks could lose their position as intermediaries.
According to the European Commission's draft proposal on cryptocurrency published on September 10 by the European media EURACTIV, the bill will seek to present solutions to the high volatility of bitcoins and the risks posed by systemic risks. A 'new college of supervisors' and a new additional body chaired by the European Banking Authority (EBA) will therefore be created comprising the existing national and European authorities.
Composed of 167 pages, the project should be presented in the next few weeks and the European Union will become the first major institution to provide a regulatory framework for cryptocurrency.
Since Facebook revealed last year the plans for its Libra token, stable corners have jumped up on the agenda of policy makers. However, some central banks and financial regulators fear that Libra, which has the potential to reach 2.7 billion users worldwide, could destabilize the monetary policy of some states, facilitate money laundering and erode privacy.
Last July, French Finance Minister Bruno Le Maire told Euractiv:
'We will not accept that Libra becomes a sovereign currency that can endanger financial stability'.
On Friday, September 11, the finance ministers of major EU members, such as Germany and France, therefore called for tighter restrictions on electronic money activities in the European Union in order to protect consumers and preserve the sovereignty of states in monetary policy.
In this call for new restrictions, Bruno Le Maire maintained his July ideas, saying:
'We are waiting for the Commission to enact very strict and clear rules to prevent the misuse of cryptocurrency for terrorist activities or money laundering. The central bank, I mean the ECB, is the only one authorized to issue currency. And this is something that cannot be weakened by any type of project, including the so-called Libra project'.
According to the new regulation, the stable coins will have to become a credit institution or an electronic money institution under the supervision of the EBA, with the help of national bodies. This means that the Libra token and other important e-tokens will be subject to stricter regulation than other digital companies.
According to the draft text of the five countries:
Stable coins are to be pledged in a 1:1 ratio in cash, with reserve assets denominated in euros or other currencies of EU member states.
The stable coins must be deposited in an institution approved by the EU.
Crypto developers should produce a 'white paper' containing all relevant information about the issuer, token or trading platform to enable potential buyers to make an informed purchasing decision and understand the risks associated with the offer.
On Saturday, September 12, Valdis Dombrovskis, the Commission Vice-President responsible for financial services, responded to the ministers' concern by stating at a press conference:
'Yesterday, some ministers expressed concerns about the risks of the so-called 'stable' tokens that are currently outside our rules. Rest assured that our legislative proposals will address these concerns in a comprehensive manner'. We will regulate the risks to financial stability and monetary sovereignty associated with the so-called 'stable' tokens used for payments.
National and European regulators must approve these documents before issuers can begin to operate. However, the Commission's proposal will not cover central bank digital currencies (CBDCs). Is this the end of cryptocurrency and decentralization?
Written by Laetitia Harson
Cartam: Free marketplace for cryptocurrency users
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