Regulators should prohibit cryptocurrencies like Libra, EU finance ministers say in joint statement

Regulators should prohibit cryptocurrencies like Libra, EU finance ministers say in joint statement
Finance

Digital “stablecoin” currencies like Facebook’s Libra project shouldn’t be permitted until regulators can assess and address the risks involved, according to a joint statement from Europe’s finance ministers.

The statement solidifies past skepticism voiced by EU authorities, and likely amounts to a de facto ban on stablecoins—cryptocurrencies that, unlike bitcoin, are tied to an asset such as conventional currencies. 

In their statement, the ministers argue that such currencies “pose multifaceted challenges and risks related for example to consumer protection, privacy, taxation, cyber security and operational resilience, money laundering, terrorism financing, market integrity, governance and legal certainty.”

“When a ‘stablecoin’ initiative has the potential to reach a global scale, these concerns are likely to be amplified and new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability, and fair competition can arise,” they said in the agreement, reached on Thursday

However, ministers also acknowledged potential benefits for consumers and for Europe’s finance sector, such as cheaper and quicker payments across national borders. They said they would consider implementing rules as part of a global effort to mitigate the risks, and EU finance commissioner Valdis Dombrovskisit said the new commission is already working on regulations, according to Reuters.

But for now, according to the ministers:

“No global stablecoin arrangement should begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed.”

It’s bad news for Libra, which has already suffered setbacks following criticism from regulators. Many of the Libra Association’s members have withdrawn, including seasoned payments firms Visa and Mastercard, which would have offered much-needed expertise on navigating regulations.

In their statement, ministers acknowledged that the push for digital currency highlights the need for improvements in the cost, speed, and convenience of conventional payment methods, particularly across borders. 

The European Central Bank (ECB) has said that without further improvements in the cost of these payments, a public digital currency could become a necessity. Such a plan could reduce transaction costs with an alternative to the risks of private currencies like Libra. But the ECB also warned the move would have a profound influence on the financial system.

In September, a joint statement from France and Germany warned Libra could potentially harm the finance sector, and both countries are now supporting plans for a public cryptocurrency. 

Photo by Kiefer. from Frankfurt, Germany [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)]

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