Mario Draghi is right. Europe is handicapping itself with substantial tariffs, especially those on the digital sector, which is the most innovative part of the service industry. Take stablecoins for example. They are a form of digital money on blockchains, such as dollars, euros, or sterling in the form of cryptographic coins. They have great potential to boost GDP but are facing obstacles in Europe.
Stablecoins are the new “killer app” of fintech. They allow for peer – to – peer transactions instantly and at almost no cost, powering global payments and various applications like automated lending and securities trading. They also enable fintechs to develop new applications more quickly and cheaply, unbundling money from banks and payment providers. In short, they are like “room – temperature superconductors for financial services”, removing barriers to the flow of money and significantly increasing GDP.
Europe already has a legal framework for digital cash called e – money, which was introduced in 2000. The newly passed EU Market in Crypto – Assets Regulations (MiCA) requires stablecoins to be e – money, which makes sense given e – money’s technical neutrality and its existence before blockchains and MiCA. However, MiCA violates the technical neutrality of e – money. It imposes additional requirements on on – chain e – money, turning banks into gatekeepers for e – money issuers and creating tariffs and anti – competitive restrictions.
For instance, MiCA requires stablecoin issuers to safeguard at least 30% of their customers’ funds with banks, sharing their income with the banks, which is a direct tariff. This requirement also makes on – chain e – money riskier as it involves banks and their balance sheets unnecessarily. Moreover, it violates the European e – money directive, which aims to ensure “fair competition” and a “level playing field” between e – money issuers and banks.
While Americans often criticize European regulations and have no stablecoin regulations yet, the Trump administration has planned to pass a stablecoin bill similar to European e – money regulations to maintain the international dominance of the US dollar and increase its digital usage. In contrast, the EU is making its tried – and – tested e – money regulations more anti – competitive, costly, and risky for European stablecoins. As Draghi said, a “fundamental change in mindset” is needed.
To solve this problem, the EU should first remove all blockchain – specific requirements for e – money and simplify the MiCA regulations. Secondly, the ECB and other EU central banks should further level the playing field between banks and e – money issuers. The ECB has recently given non – bank fintechs, including e – money issuers, direct access to its payment systems. It should take another step and give e – money issuers direct access to its safeguarding facilities, as proposed by leading IMF economists. This would help unlock the full potential of the on – chain economy for Europe and the euro.
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