Euro zone governments and central banks are working on a long-term plan to launch a public digital currency that they hope would make redundant projects like Facebook’s libra, which is seen as a risk to financial stability, officials said on Friday.
The 19-country bloc is also united in pursuing a tough regulatory approach should libra seek authorisations to operate in Europe. It is also considering a common set of rules for virtual currencies, which are currently largely unregulated.
The currency union has worked in past years on several plans to make digital payments cheaper and faster, but none of them has properly taken off so far.
But plans unveiled in June by US social media giant Facebook to launch its own digital currency, libra, for payments among its hundreds of millions of users in Europe and around the world have triggered a rethink.
Libra was “a wake-up call”, European Central Bank (ECB) board member Benoit Coeure told a news conference in Helsinki after a meeting of euro zone finance ministers.
He said libra had revived efforts to widen the uptake of an ECB-backed project for real-time payments in the euro zone, known as TIPS. The project, launched last year, has been met with caution by banks.
“We also need to step up our thinking on a central bank digital currency,” he added, unveiling a so-far little known plan.
An ECB official said the project could allow consumers to use electronic cash, which would be directly deposited at the ECB, without need for bank accounts, financial intermediaries or clearing counterparties.
These actors are all needed now to process digital payments, but may no longer be necessary if the ECB took over their functions, slashing transaction costs. Libra’s plan also would do without financial intermediaries.
Work on the ECB project started before the launch of Libra and could last months or even years, Coeure said. The technical feasibility remains to be seen and opposition from banks is likely.
France’s Finance Minister Bruno Le Maire told reporters he had a plan to make the “public digital currency” work and would discuss it with other ministers next month.
Meanwhile, European Union authorities are sending Facebook a clear message that libra is not welcome in Europe.
“Certainly the bar set for regulatory approval will be very high,” Coeure, who is a Frenchman and will end his ECB mandate at the end of the year, said.
Le Maire added that libra could cause risks to consumers, financial stability and even “the sovereignty of European states”, and repeated his pleas to block libra in Europe .
While euro zone ministers seem united on a tough regulatory line on libra, it is less clear whether they agree to set up common rules for virtual currencies.
The EU’s financial services commissioner, Latvia’s Valdis Dombrovskis, is always careful to underline that cryptoassets are an opportunity as much as a threat.
The EU does not have specific regulations on cryptocurrencies, which until libra was unveiled had been considered a marginal issue by most decision-makers because only a tiny fraction of bitcoins or other digital coins are converted into euros.
New EU-wide rules came into force last year to increase checks on virtual currencies’ trading venues with the purpose of reducing risks of money laundering and other financial crime.
But apart from that, virtual currencies move in what is largely a legal limbo in the EU, as regulators have not yet managed to agree on whether to treat them as securities, payment services or currencies in themselves – the latter option being ruled out by most.
In the absence of specific regulations, EU officials are assessing whether existing rules governing financial instruments could apply, but have so far reached no conclusion.
When asked whether libra would need a license to operate in the EU, a spokeswoman for the European Commission told Reuters that an authorisation would likely be necessary. But “with the publicly available information on Libra, it is currently not possible to say which exact EU rules would apply,” she added.
In Switzerland, Libra is applying for a payment service licence, although it could face rules that typically apply to banks, regulators in the non-EU Alpine state said on Wednesday.
The EU-wide legal vacuum has paved the way for smaller states to fill it. Tiny Malta, which already hosts the bloc’s largest online gambling industry and an outsized finance sector, has devised its own framework to attract virtual currency operators.
It is unclear whether Malta and other smaller EU states would agree with Le Maire’s tough stance on Libra and cryptocurrencies.