The ECB expresses reservations with regard to EU Directive 2019/1937 on the markets in crypto-assets and calls for an increased supervisory role for projects in the euro zone.

Following the regulation proposal of the European Parliament EU2019/1937 dated September 24, 2020, aimed at “unlocking and strengthening the potential that digital finance can offer in terms of innovation and competition, while limiting risks”, the Council of the European Union and the European Parliament have requested the opinion from the European Central Bank.

If the latter welcomes the initiative of the European Commission to propose a harmonized European framework for crypto-assets and related activities and services, it nevertheless recalled that any new regulation should not undermine the monetary sovereignty: the responsibilities of the ECB, of the Eurosystem and the European System of Central Banks (ESCB) on the conduct of monetary policy, the proper functioning of payment systems, the prudential supervision of credit institutions and financial stability.

It therefore assessed the risks of the proposed law, and particularly those associated with stablecoins by reaffirming its essential role of supervisor in order to ensure economic and monetary stability.

“Crypto-assets with a stable nominal value, which serve as a means of payment and a store of value, could affect the stability and cost of credit institutions’ deposit funding, which could pose challenges for the ability of credit institutions to fulfil their economic intermediation role.

As the financial system in the euro area is predominantly based on credit institutions, abrupt shifts in the strength of the balance sheet of credit institutions can adversely affect the stability of credit institutions and their lending capacity and, with it, the transmission of monetary policy, although changes to the financial system resulting from innovation and competition are per se not undesirable.

In a scenario of significant substitution of deposits with crypto-assets, credit institutions may need to explore alternative sources of funding, such as money market and central bank funding, with effects on bank funding costs, money market benchmark rates, and the size of the balance sheet of central banks.”

The President of the ECB – Christine LAGARDE – February 19 2021

Thus, the ECB wishes to have a right of veto on stablecoins projects in the euro zone (the most threatening of which today is undoubtedly the Diem – formerly Facebook’s Libra – whose launch is imminent).

“The proposed regulation provides that a competent authority may refuse authorisation to an issuer of asset-referenced tokens, inter alia, where the issuer’s business model may pose a serious threat to financial stability, monetary policy transmission or monetary sovereignty.

Where an asset-reference arrangement is tantamount to a payment system or scheme, the assessment of the potential threat to the conduct of monetary policy, and to the smooth operation of payment systems, should fall within the exclusive competence of the ECB.”

The President of the ECB – Christine LAGARDE – February 19 2021

The full text of the ECB is available here.

Article: Joana Foglia