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Facebook’s announcement in June to launch its own cryptocurrency, Libra, met a lot of obstacles as countries including France and Germany claimed that the use of Facebook’s digital currency in their territories could be a potential risk for their financial sector.
In accordance with that assessment, recently a European Union draft document obtained by Reuters stated that the European Central Bank (ECB) should research and consider the development of a public digital currency as Facebook’s digital currency is apparently a cause of grave concern for international regulators. This idea has already been rumored before, but now has a more official signature to it.
The content of the European Union document was reviewed by Reuters, and it is urging the EU to come up with a common approach for cryptocurrencies. This included prohibiting or avoiding high-risk projects.
In its present state, the document could potentially be picked up by the EU finance ministers by December and would heighten a European Union campaign against digital currencies. Currently cryptocurrencies have been only partially regulated in European countries.
The document was drafted by the present Finnish presidency of the EU. It states that the European Central Bank and other EU banks should investigate the potential and problems of developing central bank digital currency, and take active steps to achieve this task.
Stablecoins are digital currencies like Libra which are usually backed by fiat money or other traditional financial assets, while ‘regular’ cryptocurrencies such as Bitcoin(BTC)trade are not. The draft, which remains open for amendments, will be discussed by the European Union’s Finance Ministers as stated by the agenda for the meeting on Friday.
Libra Is a Major Concern for Governments and Regulators
The European Central Bank board member Benoit Coeure previously stated that the bank should step up its view of public cryptocurrencies and explained why Libra is feared.
Another ECB member said that the project could allow people to use electronic cash which can be directly deposited at the central bank without the need for accounts, financial mediums or clearance counterparts. Although they are a necessary now to execute digital transactions, they might no longer be needed if the ECB altered its banking functionalities and reduced the transaction costs.
Before Facebook’s announcement of developing and launching Libra, regulators mostly ignored stablecoins due to their relative small size. Tether (USDT) has been the largest stablecoin, and it is still much smaller than Bitcoin in terms of market capitalization; yet Tether did surpass Bitcoin lately in daily volume. Libra’s announcement alerted regulators greatly as it could potentially reach the billions of Facebook users.
Even though Libra has met many difficulties, including unreceptive response from governments, regulators, many banks and has lost a quarter of its members that originally joined the crypto project such as Visa and Mastercard, it might still be paving the way for central banks to develop their digital currency.