Europe's Crypto Ambitions

Make no mistake; Europe wants to be at the front of money's digital revolution. With the UK's LawTech Delivery Panel recently concluding that crypto-assets can be considered property and Christine Lagarde urging the European Central Bank to lead digital payment innovations, there is a concerted effort to be the most "crypto-friendly" jurisdiction.

Denis Beau's opening address at the Stablecoin Conference in Paris last week offered further insight into Europe's crypto-asset ambitions.

The benefits 

Mr. Beau highlighted the limitations of the first generation of crypto-assets, citing "severe price volatility and a lack of guarantee of their convertibility and security." Stablecoins are supposed to be the answer to these problems. They are created with the aim of having a stable value, backed by an underlying asset. As consumers are increasingly mobile, Mr. Beau stated that Stablecoins could challenge existing crypto providers and change payment systems through their ability to provide cheaper, easier and instant anonymous and peer-to-peer payments.

He also noted that they could be a solution to the lack of a universal cross-border payment system as they could facilitate cross-border payments in a single unit of account.

Any risks?

However, Stablecoins present a risk to payment systems, which Mr. Beau was quick to point out. They are less effective as a settlement asset, given that they have no intrinsic value (their price stability is tied to another asset). The recent G7 report on Stablecoins highlighted the multitude of concerns that providers will need to grapple with, including "money laundering and terrorist financing, competition law, consumer and investor protection."

If Stablecoins were to become an important and large factor in payment systems, these issues would amplify, potentially implicating global monetary and financial systems. It is clear that Mr. Beau wants Europe to be leading the charge but he is clearly advocating caution.

What's next?

Mr. Beau was keen to stress that it's the responsibility of the private sector to minimise the risks presented by Stablecoins. It will then be for the regulators to ensure their compliance without stifling innovation. Mr. Beau rightly recommends that any change to the regulatory framework to accommodate such digital forms of payments must be followed with "broader adjustment at the global level". This will minimise the exposure of Stablecoins to regulatory arbitrage so that users cannot exploit differences in different jurisdictions' regulatory approaches.

The Financial Stability Board is currently developing a global regulatory and supervisory approach towards Stablecoins. If the risks described above are addressed and 'global stable coins' are developed, as Mr. Beau suggests, it may well precipitate a more co-ordinated global regulatory response.