ECB Opines on Crypto-Asset Proposal, Discusses Success Factors of CBDC
The European Central Bank (ECB) published an occasional paper on the functional scope, pricing, and controls of Central Bank Digital Currency (CBDC) as well as an opinion on the proposal for a regulation to extend traceability requirements to transfers of crypto-assets. This opinion is in response to requests from the European Parliament and the Council for an opinion on the proposed regulation. In its opinion, ECB welcomes the initiative of the European Commission (EC) to extend traceability requirements to crypto-assets by means of the proposed regulation, which forms part of the Anti-Money Laundering/Countering Financing of Terrorism (AML/CFT) package adopted by EC in July 2020. ECB also welcomes the proposed regulation as a means of leveling the playing field for crypto-asset service providers.
Regarding the scope of the proposed regulation, which involved proposals for a regulation on information accompanying transfers of funds and certain crypto-assets, ECB understands that scope is not intended to cover crypto-assets issued by central banks acting in their monetary authority capacity. However, for the sake of legal certainty and to fully align the scope of the proposed regulation with that of the proposed Markets in Crypto-Assets (MiCA) regulation, ECB proposes to explicitly indicate this in the recitals and provisions of the proposed regulation. The proposed regulation contains references to the term "fiat currencies." In accordance with the Treaties and Union monetary law, the euro is the single currency of the euro area. Nowhere do the Treaties refer to the euro or the member states’ currencies as "fiat" currencies. Against this backdrop, it is not appropriate to make reference in a Union legal text to "fiat currencies." Rather, the proposed regulation should refer instead to "official currencies." In its opinion, ECB also highlighted that aligning the date of application of the proposed regulation with that of the proposed MiCA regulation would be helpful from a systemic and financial stability perspective in order to ensure that the proposed regulation applies to crypto-asset transfers sooner rather than later.
Additionally, the ECB paper on CBDC discusses success factors for such a currency and how to avoid the risk of crowding out. After examining ways to prevent excessive use as a store of value, the study emphasizes the importance of the functional scope of CBDC for the payment functions of money. The paper also recalls the risks that use could be too low if functional scope, convenience, or reachability are unattractive for users. The paper notes that three key success factors of a CBDC will be merchant acceptance; the willingness of intermediaries to distribute it and interact as needed with users; and an attractive value proposition for individuals and firms to use it for payments. This also raises the question of a business model for a CBDC; for example, the incentives for front-end service providers. While there can be little doubt about the merits of CBDC and the need for central banks to follow the change in retail payments habits and technology to continue servicing individuals and firms, this paper has illustrated the complexity of the technical challenges ahead. Designing CBDC to achieve its objectives in a controlled manner will require giving deep consideration to both the economic nature of money as a means of payment and a store of value, and to the rich ecosystems of digital retail payments, the paper concludes.
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Keywords: Europe, EU, Banking, Securities, Opinion, MiCA Regulation, CBDC, Digital Currency, Crypto-asset Regulation, Crypto-assets, ECB
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