Leading the Digital Financial Era | EU Vice President: Developing Cryptographic Assets, Strictly Limiting Global Stablecoins like Libra

The Vice President of the European Commission for Economic Affairs mentioned in a recent public speech the trend of digital finance, stating that it not only presents a great opportunity for the EU to set global standards but also that they are preparing a new regulatory framework for cryptocurrencies. This may result in stricter regulatory standards being set for Facebook's stablecoin project Libra.

EU Seeks to Lead in Digital Financial Technology

Valdis Dombrovskis, the Chief Economic Minister of the European Union, delivered a speech on the 23rd of this month at the 2020 Digital Finance Conference. In his concluding remarks at the event, he stated that Europe must seize the opportunity to set global standards for digital finance, enhance its international position, and lead in this emerging technology, with the first use case being cryptocurrency. He pointed out:

The COVID-19 pandemic has highlighted the public's reliance on digital technology, allowing society to function normally during large-scale lockdowns. Online financial transactions have transitioned from convenience to necessity during the coronavirus outbreak, facilitating the functioning of capital markets, with more people recognizing its advantages.

Given these strong needs, I do not want the adoption process of digital technology to slow down.

He emphasized that the European financial sector is also evolving, but cannot keep up with constantly innovating technologies. To compete internationally and take the lead, Europe must fully utilize the opportunity presented by digital technology:

I believe digitization is the future of finance.

Dombrovskis stated.

Enhancing Regulatory Efforts

Dombrovskis believes that Europe has a solid regulatory foundation, with its open banking regulation, the "PSD2," being recognized as a global leader in regulating and promoting open payment startups. However, there are still many obstacles to overcome, and he proposed three key strategies:

• Deepening the single market to address scalability barriers
• Building on the concept of "open banking" to promote financial data accessibility
• Maintaining regulatory neutrality while stimulating startup development

Cryptographic assets and distributed ledger technology will be the first test cases. Dombrovskis stated that as distributed ledger technology continues to evolve, they will launch pilot projects and provide regulatory flexibility – a framework that is reasonable yet strict. He pointed out that the regulation required for stablecoins like Libra is of a different level:

For cryptographic assets like stablecoins (pegged to the value of the euro or a basket of currencies), we need to differentiate between "global stablecoins" and assets created by financial startups and SMEs, as these two are different. If stablecoins reach a global scale, they will challenge current financial stability and monetary policy.

In the above scenario, due to its potential systemic risks, our regulations will be stricter.

Dombrovskis concluded that regulatory approaches will vary according to the level of risk, meaning that projects with lower risks will have more lenient regulations. He emphasized that the digital age is already imprinted in our lives, with the post-COVID-19 society fully embodying this. The European Commission is currently drafting legislation for all financial institutions and plans to announce it by the end of the third quarter.