The European Union believes the European Central Bank should look into issuing its own cryptocurrency in the vein of the beleaguered Libra project by Facebook.
The social media giant announced its proposition for a stablecoin in June 2019 and was met with a frosty response, with the idea of a company the size of Facebook carving out a slice of the financial world not sitting comfortably for politicians or regulators.
This came to a head in October with Mark Zuckerberg facing a grilling in front of Congress for the proposed cryptocurrency. Facebook’s prior record on data usage and the lack of clarity on regulatory oversight were the main talking points.
Concerns are also rife across the Atlantic with France and Germany blasting Libra. French finance minister, Bruno Le Maire, and German counterpart, Olaf Scholz, said that digital currencies threaten “the monetary sovereignty” of European states and that Facebook’s venture “fails to convince that those risks will be properly addressed”.
This statement coincided with the ECB expressing a deeper interest in the long-term potential of a public digital currency, which may undercut projects like Libra. However, it is likely that such plans were mooted before Libra’s announcement in June.
The ECB would not be alone in looking into a centralised digital currency. China’s plans in this area are well known, while Turkey, Tunisia and the Marshall Islands all announcing similar ventures.
“Governments have been discussing this issue well before Libra was announced,” says Kiran Raj, CEO of cryptocurrency trading platform, Bittrex Global.
“Libra, however, may have created an atmosphere where more folks are paying attention to the work that governments have been doing.”
There have been numerous bullish signs from China in the area of cryptocurrency and blockchain. Most recently, the state-run news outlet, Xinhua, published a Bitcoin explainer on its front page, referring to it as the “first successful application of blockchain”.
It is likely that the European states are keen to express their interest in a centrally-backed cryptocurrency in light of China’s plans. Rumours circulated in August that a launch could happen as soon as November 11th, though the People’s Bank of China has subsequently described this as “inaccurate speculation”.
European digital currency - good news or bad news?
Questions will surround the EU and ECB having the wherewithal to launch a digital currency with the agility to keep up with a fast moving and evolving industry.
“It’s understandable that the US and Europe would want to follow suit,” says Iqbal Gandham, UK managing director at eToro. “But most governments and central banks will struggle to develop a sovereign cryptocurrency because they still don’t understand how the sector works.”
The technical challenges are sure to be a barrier, especially when paired with concerns over security, cybercriminals and consumer protection. Projects by governments and central banks are likely to be deliberate and cautious, and it remains to be seen how much progress has already been made by the ECB on such a proposed digital currency.
With this in mind, some commentators will suggest that the EU and ECB would be advised to embrace a currency that already exists and has at least some fledgling mainstream use.
“Bitcoin has been established for over a decade now, with a growing number of big companies happy to pay their employees in Bitcoin and retailers accepting it as payment,” Gandham says.
“You have to ask yourself, ‘why re-invent the wheel?’”
“Bitcoin is here to stay” is a popular refrain of its many enthusiasts. While its mainstream use appears to be growing and even its dreaded volatility shows signs of simmering down, its finite supply means it’s unlikely any Western governments would embrace it as a sovereign cryptocurrency.
Governments and central banks are unlikely to endorse anything that they cannot control, which also helps explain their less than positive response to Mr. Zuckerberg’s scheme.
“Libra has certainly opened the eyes of governments to the potential concern of private companies creating their own currencies, therefore taking away control from the governments and central banks,” says Danny Scott, CEO of Bitcoin exchange, CoinCorner.
The removal of influence by governments and central banks formed the basis of appeal of cryptocurrency for many of its early adopters, so the idea of an ECB-controlled digital currency is unlikely to be met with enthusiasm.
However, as the cryptosphere has evolved, many participants have become more philosophical in this area and, recognising the importance of regulation, welcome any signs of positive intent from financial and political elites.
“You can look at this both ways - it's positive in the manner of shining a light on cryptocurrencies, but you could also argue that it's negative because these are centralised entities attempting to gain/keep control,” says Danny Scott.
“Personally, I think it's positive - it gives cryptocurrencies credibility. Watching how Libra has played out so far, I also believe that this just highlights the true power of the decentralisation aspect of Bitcoin.”
The view then may be that there is no such thing as bad press when it comes to cryptocurrency.
“The more that blockchain technology is adopted and understood by governments around the world, the better it will be for the industry as it will foster increased innovation, regulatory clarity, and consumer protection,” Kiran Raj sums up.