European Central Bank (ECB) Demands Power to Shut Down Private Stablecoins, Like Diem, in the EU
The European Central Bank finally tables its official opinion regarding crypto regulations to the top decision-making again, European Commission.
In their official opinion, the ECB now wants the EU members of parliament to grant its veto powers regarding the legal status of stablecoins such as Facebook-supported-Diem.
The ECB raised its concerns regarding the use of stablecoins that get their value from being pegged on one or many global currencies. The central bank is worried that stablecoins could jeopardize its control on payments, banking, and cash supply. Part of the ECB’s statement reads,
“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 ECB also urges the lawmakers to ensure its absolute powers on stablecoins are binding and applicable to the entire national authorities within the Euro Zone.
The ECB argues that various ‘rigorous liquidity requirements’ are crucial in ensuring redemption rights are protected and clients’ direct claims towards the reserved assets that the issuers of stablecoins hold.
Firms offering tokens which are pegged on different currencies should at a minimum grant end-users a direct claim on the issuer or the reserve assets and redemption rights”, the central bank added.
Facebook had in the past laid a plan to roll out its stablecoin dubbed Libra that was pegged on different global currencies. However, the tech giant slowed down on the Libra project following many regulatory hurdles in the world. At the moment, the firm is aiming at launching the dollar-pegged stablecoin dubbed Diem.
If the EU legislators grant ECB the veto powers, Facebook and other privately issued stablecoins will likely encounter another round of regulatory backlash irrespective of the project being licensed by Swiss authorities.
It is also important to note that Christine Lagarde, the current ECB president, has criticized cryptos and stablecoins. Lagarde has in the past said central banks should never be allowed to hold Bitcoin.