The European Central Bank (ECB) seeks veto power over cryptocurrency launches in the euro zone, as well as having a greater spectrum of supervision. This would include, for example, Facebook’s proposed stablecoin DIEM, formerly known as Libra.
According to this the ECB, stablecoin issuers should meet “stringent liquidity requirements” in cash reserves, similar to money market funds.
On February 19, 2021, the European Central Bank published a proposal and modification of the regulation on the cryptocurrency markets. This proposal is based on a bill that had been presented on September 24, 2020, after receiving a series of requests from the Council of the European Union and the European Parliament.
The current document, called “Opinion of the European Central Bank”, indicates that the risk assessment in the conditions of stablecoins, which represent a possible threat to the financial stability of the euro zone, should “be under the exclusive competence of the ECB”.
The text indicates that, specifically, Major stablecoin issuers should be required to conduct regular stress tests. These should take into account serious but plausible financial stress (eg interest rate shocks) and non-financial (eg operational risk) scenarios.
Dedicate a section to specific observations on the financial stability and prudential aspects of supervision. In it, it argues that in the proposed regulation, the ECB must be notified in cases where an institution issues a white paper when it intends to provide a service related to cryptocurrencies.
Reiterates the 12-page report, which the ECB should have the last word on the possibility of enabling the launch of a stablecoin in the euro zone. This should not jeopardize your control over inflation or payment security.
“When an asset reference agreement is equivalent to a payment system or scheme, the assessment of the potential threat to the conduct of monetary policy and the proper functioning of payment systems should be the responsibility of the ECB”, says the institution .
Adds text that the proposed European Union rules should be amended to say that its opinion on the matter is binding on the national authorities that evaluate the requests for issuance of final resolutions.
Central banks concerned about the rise of bitcoin and other cryptocurrencies
Central banks around the world are cryptocurrency boom worries, especially stable ones, which derive their value from one or more official currencies. They fear that this could erode control over payments, banking, and ultimately the money supply.
A stablecoin is a cryptocurrency created in order that its value remains stable in relation to that of another asset. To maintain this little variability in their market price, they generally use a backup collateral deposit. The hedge relationship is made with other financial assets, fiat currencies, raw materials and even other crypto assets.
The ECB places rigorous requirements on issuers of stableicons. Source: wikipedia.org
As you will recall, on September 24, 2020, the European Commission proposed a comprehensive regulatory framework for cryptocurrencies that would make them a regulated financial instrument.
The bill dubbed the «Market Regulation in Crypto Assets»(MiCA) would provide this economic bloc with clarity on what constitutes a cryptoasset, as well as definitions for different subcategories of tokens.
It would also give them rules on cryptocurrency custody and capital requirements, while stipulating what the relationship will be between the token issuer and its holder, including establishing a procedure for investors to file complaints against projects.
The ECB indicates that Facebook would have to adhere to this regulation before launching its stablecoin proposal in the Euro Zone. The company planned to launch its cryptocurrency, initially called Libra, backed by a basket of official currencies, but scaled down the project last year after receiving a tip on regulatory matters.
The ECB also made a wake-up call to companies selling tokens pegged to various currencies. These “should at least grant end users a direct claim on the issuer or on reserve assets and exchange rights.”
If this regulation is approved, it would be applicable in the 27 member states, granting regulated cryptocurrency companies passport rights throughout the block.
Also the President of the ECB, Christine Lagarde, said that Bitcoin should be regulated globally or it will become a safety valve. In his own words, it is “an issue that has to be addressed globally, because if there is a leak, that leak will be used,” CriptoNoticias reported.
Lagarde considered on January 13, 2021 that “international cooperation and multilateral action is necessary” to promote a consensual regulation that is firmly applied to bitcoin.