Europe is ready to “prevent the development” of risky digital currencies including Libra until all concerns have been addressed, according to the latest proposal to be discussed by EU finance ministers and seen by EURACTIV.com.
Facebook’s project to launch a digital currency has sparked a global backlash since having been announced last summer.
On Friday (8 November), EU finance ministers will discuss how to best respond to the myriad of challenges brought by this ‘stablecoin’, a digital token backed by sovereign currencies.
The latest draft text brings back the possibility of banning ‘global’ stablecoins that create “excessive risks”.
Member states say that “all options should be on the table including the possibility to take measures preventing the development of projects that would create unmanageable or excessive risks”.
The previous draft version was more vague. National governments were ready to take measures “preventing global stablecoins from creating excessive risks”.
The latest text is in line with the initial draft document prepared by Finland’s rotating presidency of the EU, which already contemplates the possibility of taking measures that “would impede the development” of projects with “unmanageable risks”.
The latest draft included a new paragraph saying that Libra and similar projects “should not begin operation in the EU” at least until all the challenges and risks have been identified and addressed.
Friday’s debate is seen as a stepping stone towards reaching some conclusions in December, but the lack of clear information on the Libra project is obstructing European progress.
The European Commission has already sent two questionnaires to Facebook to better understand the nature of the digital asset and the goals, but the lack of clarity about the stablecoin “makes it impossible to reach definitive conclusions on whether and how the existing EU regulatory framework applies”, draft text says.
EU officials however anticipated that new legislation would be necessary, as part of the EU’s ongoing effort to design a common approach to crypto-assets, and the bloc has been pondering new rules for tokens based on the blockchain technology for more than two years.
Given the nature of the challenges posed by Libra, EU decision makers and regulators now want to act “swiftly”, says the draft text.
But EU officials are also wary of the unintended consequences that hasty regulation on Libra and the like could have on other crypto-assets projects and ‘fintech’ initiatives.
For that reason, member states said that the new rules should be based on “sound evidence” and “general principles” applicable to all ‘stablecoins’.
Given the global nature of Facebook’s project, Europeans are advocating for a global response.
Shortly after Libra was announced, G7 nations warned of the serious risks to the financial and monetary order. The group said that the initiative would be subject to very strict regulatory oversight.
Although ‘stablecoins’ could bring cheap and fast payments to users, regulators are concerned about their impact on consumer protection, privacy, taxation, cyber security and operational resilience, money laundering, terrorist financing, market integrity, governance and legal certainty.
These potential risks increase exponentially when ‘stablecoins’ reach around 2.4 billion users across the planet, as it is the case with Facebook’s Libra.
The initiative, currently being developed by a consortium of companies, could affect the monetary sovereignty, the safety and efficiency of payments systems, the financial stability and the competition, Europeans say.
Facebook said that it won’t launch Libra until all regulatory concerns have been addressed, likely to result in a postponement of the to the original 2020 release.
The EU not only wants to limit and control ongoing ‘stablecoin’ projects, it also wants to offer alternatives for users to replicate their benefits.
For that reason, the draft text to be discussed by the ministers on Friday “encourages” the ECB to continue assessing the benefits of launching its own digital currency, in dialogue with payment companies.
[Edited by Samuel Stolton]