According to Reuters, the European Central Bank (ECB) has asked EU lawmakers to veto the launch of stablecoins like Facebook’s Diem in the euro area, as well as more control over them. Central banks around the world are worried about the strengthening of cryptocurrencies, especially stablecoins. They fear that this could weaken their control over financial flows.
Stablecoins are a type of cryptocurrency that is backed by stocks of common currencies or commodities. As a consequence, their exchange rates are subject to less fluctuations than those of typical cryptocurrencies.
Last September, the EU spoke about its plans to create comprehensive rules for cryptoassets, including stress tests, as well as capital and liquidity requirements. At the same time, the EU said that Facebook would have to take them into account before launching its cryptocurrency in Europe. After reviewing the EU rules, the ECB said that the issue of whether to allow stablecoin launches in the euro area should be regulated by it, and its opinion should be taken into account by national authorities considering applications for launching stablecoins.
Facebook originally planned to launch a stablecoin called Libra, backed by a number of official currencies, but the project was halted last year due to backlash from regulators. The company is now preparing to launch the dollar-backed digital currency Diem.
The ECB said that there should be strict liquidity requirements for issuers of stablecoins similar to those applied to money market funds, including significant cash reserves.
Recall that the ECB is working on its own cryptocurrency, the digital euro, which is going to be launched in the next four years. It will not be subject to EU private digital currency rules. The ECB’s leadership says that regulation of cryptoassets such as Bitcoin must be global to close all loopholes.