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ECB Opinion on Global Stablecoin Regulation Now Public
PAR002_123 • Feb 24, 2021
ECB has asked EU lawmakers for veto powers concerning Global Stablecoin projects like the Facebook-backed Diem
On Friday, the European Central Bank (ECB) submitted a 42-page opinion on the draft European Union (EU) regulations for Markets in Cryptoassets (MiCA) telling European Union lawmakers that they should have the final word on whether ‘asset- referenced tokens’ (stablecoins) and ‘e-money tokens’ should be allowed to launch in the euro zone without jeopardising its control over inflation or the safety of payments.
Under the proposed regulation, crypto-assets, in particular the two sub-categories of ‘Asset Referenced Tokens’ and ‘e-money Tokens’, have a clear monetary substitution dimension having regard to the three functions of money as a medium of exchange, store of value and unit of account.
The ECB said,
“Where an asset-reference arrangement is tantamount to a payment system or scheme, the assessment of the potential threat to the conduct of monetary policy, and to the smooth operation of payment systems, should fall within the exclusive competence of the ECB.”
The proposed regulation emphasises the medium of exchange function of e-money tokens, noting that these are ‘intended primarily as a means of payment aimed at stabilising their value by referencing only one fiat currency’, and that ‘like electronic money, such Cryptoassets are electronic surrogates for coins and banknotes and are used for making payments’.
An additional concern raised by the ECB is the proposed ban on interest-bearing crypto-assets similar to e-money saying with negative interest rates, holding e-money that bears interest will become rather attractive and could end up competing with banks for deposits, raising the cost of funding.
The draft MiCA legislation already proposes that ‘Asset Referenced Tokens’ might be refused authorisation by a ‘competent authority’. But which authority depends on the nature of the token. Hence the ECB suggests that where such a token is like a payment scheme, the exclusive right to refuse authorisation should sit with the ECB or the national central bank where the token is issued.
According to the ECB, 'Asset Referenced Token' (Stablecoin) issuers must comply with the same robust liquidity requirements as mainstream financial institutions such as banks and “rigorous liquidity requirements” are necessary to ensure the protection of redemption rights and customers' direct claims to the reserve assets held.
It also reiterated concerns about the assets used to back the Tokens. The demand for assets such as treasury bills might increase, impacting their price, distorting markets and could challenge the Euro for payments.
If EU lawmakers grant veto powers to the ECB, then private 'Significant Asset Referenced Token' (Global Stablecoin) issuers like Diem could be in for further regulatory hurdles even if the project secures approval from Swiss regulators.
The ECB is currently working on its own digital euro, hoping to launch it within the next four years.
Source:
OPINION OF THE EUROPEAN CENTRAL BANK of 19 February 2021 on a proposal for a regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937 (CON/2021/4)
https://op.europa.eu/en/publication-detail/-/publication/4a9e9ba4-a884-11eb-9585-01aa75ed71a1
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