ECB to consider issuing public digital currency

The ECB should consider issuing a public digital currency, according to an EU draft document seen by Reuters. The text also urges the bloc to develop a common approach to cryptocurrencies, including ban on projects deemed too high-risk. The move is a reaction to the Facebook plans to introduce its Libra digital currency, met with hostility by global regulators.

The document, if adopted by EU finance ministers in early December, would escalate an EU regulatory campaign against cryptocurrencies, which have so far been only partly regulated in some EU states. “The ECB and other EU central banks could usefully explore the opportunities as well as challenges of issuing central bank digital currencies including by considering concrete steps to this effect,” said the draft, prepared by the Finnish EU presidency and subject to amendments.

According to an ECB official, the project, in its most ambitious version, could allow consumers to use electronic cash, which would be directly deposited at the ECB, without need for bank accounts, financial intermediaries or clearing counterparties. They are all needed now to process digital payments, but might no longer be if the ECB took over their functions, slashing transaction costs.

Until Facebook launched its project in June, regulators had largely ignored stablecoins because of their tiny size. The largest, Tether, is far smaller than bitcoin. But Libra’s potentially huge reach - it could be used by billions of Facebook users - has spooked regulators.

As part of a global push against Libra, the G7 group of wealthy nations said last month that stablecoins should not be allowed to launch until international risks they posed were addressed. Under regulatory pressure, Libra has lost a quarter of its original members, including payments firms Visa and Mastercard.

The EU document reiterates the G7 concerns over the risks that private currencies pose, citing money laundering, consumer protection, the functioning of payment systems, taxation and cyber security. But in recommending an outright ban on risky projects and a move toward a public digital currency it goes further.

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