Regulators in Europe have called on the European Central Bank (ECB) to explore the feasibility of launching a digital currency for the bloc. Supranational agencies and governments, alike, have labeled stablecoins – especially Libra – a potential menace to financial stability. As per documents seen by Reuters, the proposed draft suggests that said digital currency could be directly run out of the central bank’s ledger, eliminating the need for commercial banks, which is bound to be heavily contested by the financial sector, November 5, 2019.
Libra Spurring Governments Into Action
Bitcoin has been around for a decade and stablecoins for five years, but the announcement of a stablecoin from the world’s largest social media platform triggered a government meltdown that is sending global regulators into a defensive frenzy.
Europe, in particular, has been extremely hostile towards Libra, although a top bureaucrat, Benoit Coeure, has previously stated that they have no quarrel with the concept of a stablecoin.
Despite acknowledging the multitude of benefits offered by stablecoins, the G7 countries and their financial heads declared them a threat and called on countries across the globe to prohibit launches.
The proposal seen by Reuters not only asks the ECB to think about a native digital currency but also recommends a unilateral cryptocurrency framework, that bans high-risk projects and tokens.
The most controversial, and mind-boggling, statement in this episode comes from an ECB official who believes that customers could use this straight from the central bank’s books and eliminate the financial intermediaries between the end consumer and the central bank.
No doubt this will be lobbied and pushed away from ever being a remote possibility. Makes one think the most effective move for stablecoin issuers is to form a lobby as well.
Eliminating High-Risk Cryptocurrency
The draft suggests a ban on high-risk cryptocurrency and a strong hand of regulation for the others. What’s intriguing about this is the mechanism by which they will decide what is high risk and what isn’t.
So far, there has been no insight as to how this will be done, but one could develop a rough idea by examining the way bureaucrats have justified their positions thus far.
To be quite frank, there really isn’t a cryptocurrency that isn’t “high-risk” per se, given the volatility and liquidity risks that plague the broader market.