Europe is sabotaging its digital money

The following is a guest post and opinion of Sveinn Valfells, Co-founder of Monerium.

Mario Draghi is right. Europe hobbles itself with substantial tariffs, including regulations on “the most innovative part of the service sector – digital”. The European Union has done just that by creating tariffs on stablecoins, a practical form of digital money could provide a significant positive impact on GDP.

The Promise of Stablecoins for Europe

Stablecoins are digital money on blockchains – dollars, euros, or sterling as cryptographic coins. They are the new “killer app” of fintech, programmable cash which moves peer-to-peer without intermediaries – instantly at virtually no cost  – powering global payments and applications such as automated lending and securities trading.

Stablecoins allow fintechs to build new applications faster and cheaper than ever before. They enable “open banking on steroids” twice over by unbundling money from banks, payment providers, and their closed, proprietary fintech technologies. They are “room-temperature superconductors for financial services” which remove barriers to the flow of money, significantly boosting GDP.

Stablecoins are more than an abstract financial innovation. They let a Polish worker in France send their euros home instantly for cents instead of paying several euros and waiting up to two days. They enable German start-ups to raise capital efficiently through automated issuance of compliant digital shares and debt instead of slow, expensive, and inflexible manual paperwork.

To unlock the potential of stablecoins, Europe’s currencies must be accessible domestically and internationally as euros, zloty, and krona onchain. The good news is that Europe has a tried and tested legal framework for digital cash called e-money, introduced in 2000. The bad news is that Europe has hobbled itself by wrapping e-money issued onchain with a thick layer of unnecessary red tape.

How MiCA Creates Unfair Barriers for Innovation

E-money is a terrific regulatory innovation. It is a digital cash bearer instrument for payments. Dozens of companies, including PayPal, Revolut, and Wise, have successfully used e-money to serve millions of customers in billions of online, mobile and card transactions. E-money is the ultimate form of stablecoin, as if made for the onchain economy.

The newly passed EU Market in Crypto-Assets regulations (MiCA) require stablecoins to be e-money. This makes a lot of sense because e-money pre-dates blockchains and MiCA as a “technically neutral” form of digital cash.

However, MiCA violates the technical neutrality of e-money and imposes tariffs and anti-competitive restrictions by creating additional requirements for e-money onchain.

For example, MiCA turns banks into gatekeepers for issuers of e-money onchain. Unlike regular e-money which can be 100% safeguarded directly in high-quality liquid assets such as government bonds, MiCA requires stablecoin issuers to safeguard at least 30% of their customers’ funds with banks, requiring them to share their income with the banks. That’s a direct tariff payable to the banks.

The MiCA bank safeguarding requirement also makes e-money onchain more risky because it inserts the banks and their balance sheets where they need not be. The higher risk of holding money with banks is a tariff because it requires e-money issuers to hold larger reserves.

The MiCA bank safeguarding requirement is also illegal. It directly violates the European e-money directive which explicitly states that one of its key goals is to ensure “fair competition” and a “level playing field” between e-money issuers and banks. The MiCA bank safeguarding requirement does exactly the opposite: it shifts the playing field in favor of the banks.

Leveling the Playing Field

Americans like bashing European regulations and have no stablecoin regulations in place. Nevertheless, the Trump administration has prioritized passing a stablecoin bill mirroring European e-money to “ensure American dollar dominance internationally [and] to increase the usage of the US dollar digitally”.

Meanwhile, the EU is hobbling itself by making the tried and tested e-money regulations more anti-competitive, costly, and risky for European stablecoins. Like Draghi says: “A fundamental change in mindset” is needed.

The solution is simple. Firstly, the EU should remove all the blockchain specific requirements for e-money and rip the unnecessary red tape out of the otherwise mostly sensible MiCA regulations.

Secondly, the ECB (and other EU central banks) should further level the playing field between banks and e-money issuers.

How? The ECB has recently granted non-bank fintechs, including e-money issuers, direct access to ECB payment systems. This helps e-money issuers by giving them direct access to the same core payment systems as the banks.

The ECB should take one more step and give e-money issuers direct access to its safeguarding facilities. Leading IMF economists have already proposed this idea. That would remove all unnecessary gatekeepers and tariffs between the ECB and the issuers of euro stablecoins and help unlock the full potential of the onchain economy for Europe and the euro.

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