The European Council and the European Commission have stated that digital currencies such as Facebook’s Libra should not be allowed in the European Union until the risks they could pose are properly addressed.

So-called 'stablecoins' may present opportunities in terms of cheap and fast payments, especially cross-border payments, the statement explained, but “at the same time, these arrangements pose multifaceted challenges and risks related for example to consumer protection, privacy, taxation, cyber security and operational resilience, money laundering, terrorism financing, market integrity, governance and legal certainty”.

When a stablecoin initiative has the potential to reach a global scale, these concerns are likely to be amplified and new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability and fair competition can arise, EU policymakers added.

While the likes of Bitcoin fall under the cryptocurrency umbrella, stablecoins are digital currencies backed by tradition money and other securities.

The latter is what the social media giant is trying to develop, with an announcement in June that it had the support of major payments and financial services players like Mastercard, Paypal and Visa for its Libra virtual currency and Calibra digital wallet, which would enable payments across Facebook, WhatsApp and Instagram.

However, this Libra Association saw an exodus of major members as authorities and regulators around the world expressed scepticism ahead of the planned launch next June.

Facebook has since pledged to win the support of both industry and watchdogs, with the International Organization of Securities Commissions last month suggesting existing securities rules could apply to such asset-backed digital currency initiatives.

The new EU joint statement referred to the recent report of the G7 working group dedicated to these issues, pointing out that global stablecoin projects and arrangements “should not come into operation until all risks and concerns are properly addressed”.

It continued that there is a need to ensure legal clarity about the status of stablecoins, noting that some recent projects of global dimension have provided insufficient information on how precisely they intend to manage risks and operate their business.

The statement also called for a coordinated global response to tackle these challenges. “Consistent with the global response, the Council and the Commission are willing to act swiftly, in cooperation with the ECB and with national and European Supervisory Authorities.”
It added that this approach should include consultation and development of the evidence base as precursors to potentially developing new legislation for a common EU approach to crypto assets.

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