The European Central Bank (the ECB) has recently revealed it holds a strong view that its authority to implement monetary policy, protect the euro and promote the smooth operation of payment systems, should include the right to oversee the launch and operation of stable coins. Alongside assuming "a greater role in their supervision", the ECB has told European lawmakers that it is especially eager to have "veto power on the launch of stablecoins such as Facebook’s Diem in the euro zone."
Following through with its objectives
Last September the EU announced its plans to churn out “comprehensive rules for crypto-assets, including stress tests as well as capital and liquidity requirements”. Back then it was already hinting at its intentions to close in on stable-coins, foreshadowing that “Facebook would have to adhere to them before launching its proposed stablecoin (Diem)”.
Now the ECB has recently proclaimed that:
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.
Drawing comparisons between standard payment systems and stable coins, the ECB reportedly believes that:
...issuers of stablecoins should be subject to “rigorous liquidity requirements” similar to those applied to money market funds, including significant cash reserves, to help them withstand large client outflows. Companies selling tokens linked to several currencies “should at a minimum grant end-users a direct claim on the issuer or on the reserve assets and redemption rights”.
Why the fuss?
In a nutshell, the ECB, like many central banks, is fearful of how the rise in digital assets - especially stablecoins which take their value from one or more official currencies, will impact the breadth of their control over the euro.
It seems they figure that if they don’t step in and claim their right to regulate and have a say in the development of this new type of money now - they may miss the boat. It would explain why ECB President Christine Lagarde has encouraged the rest of the world to increase its regulation surrounding digital assets. In a Reuters interview last month, she said that “regulation of crypto assets like bitcoin should be global to close all loopholes”. No wonder the ECB is busily working on a digital euro that it hopes to launch in the next four or five years.
For the author, this movement by the ECB raises the question of where Australia places in this global race for regulation. With the EU continuing to pave the way for the continent to become a global standard-setter in digital assets, will Australian policy and regulation keep up?
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