EU Draft Floats Digital Currency Proposal To Counteract Libra

European Union

A European Union draft document says the European Central Bank (ECB) should contemplate issuing its own digital currency, Reuters reported on Tuesday (Nov. 5).

The draft, which was seen by Reuters, also encourages the bloc to create a common cryptocurrency framework and ban high-risk projects.

The draft follows Facebook’s announcement in June to launch the cryptocurrency Libra, which sparked scrutiny by global regulators. In September, France and Germany said Libra was too risky and backed developing a public alternative.

The draft document, which can be amended, could be reviewed by EU finance ministers on Friday (Nov. 8) and could possibly be adopted at their next gathering on Dec. 5.

“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,” reads the draft, which was prepared by the Finnish EU presidency. 

Until Facebook announced Libra, regulators mostly ignored stablecoins due to their small scale. Tether is the biggest stablecoin currency and it doesn’t compare in size to bitcoin, which is not a stablecoin. (Stablecoins are cryptocurrencies backed by traditional currency; Libra would follow that model.)

“At the very least, we need a robust regulatory framework to deal with virtual currencies,” Markus Ferber told Reuters. Ferber, a German conservative, has been a member of the European Parliament (MEP) since 1994 and vice-chair of the Economic and Monetary Affairs Committee.

“The [executive EU] Commission has been way too … complacent on the issue so far. With the threat of Libra on the horizon, it is time for action now,” he said.

In October, European Central Bank Executive Board member Benoit Coeure called for strict supervisory principles for digital currencies and stablecoins like Facebook’s Libra.

Coeure leads the G7 taskforce on stablecoins, which gave a presentation at the annual meeting of the International Monetary Fund in Washington, D.C.

“Until recently, we’ve taken a sandbox approach to FinTech regulation under which we could afford to give projects a chance and see how risks materialize,” Coeure said. “But now we have an elephant in the sandbox, so that approach doesn’t work anymore.”