The proposed regulation outlines that crypto-assets, especially the two sub-categories of ‘Asset Referenced Tokens’ and ‘e-money Tokens’, possess a clear dimension of monetary substitution, considering the three roles of money: medium of exchange, store of value, and unit of account.
The ECB stated,
“Where an asset-reference arrangement resembles a payment system or scheme, the evaluation of potential risks to monetary policy execution, and the smooth functioning of payment systems, should exclusively remain the domain of the ECB.”
The proposed regulation highlights the medium of exchange role of e-money tokens, indicating that these are ‘primarily intended as a method of payment designed to stabilize their value by being tied to a single fiat currency’, asserting that ‘similar to electronic money, these crypto-assets act as electronic substitutes for coins and banknotes and are used for transaction purposes’.
Another issue raised by the ECB concerns the suggested prohibition on interest-bearing crypto-assets like e-money, stating that in an environment of negative interest rates, holding interest-bearing e-money could become appealing and might compete with banks for deposits, thus increasing funding costs.
The draft MiCA legislation proposes that ‘Asset Referenced Tokens’ could be denied authorization by a ‘competent authority’. However, the authority in question varies based on the type of token. The ECB recommends that should such a token function similarly to a payment scheme, the exclusive authority to decline authorization should rest with the ECB or the national central bank where the token is issued.
The ECB asserts that ‘Asset Referenced Token’ (Stablecoin) issuers must adhere to stringent liquidity requirements akin to those imposed on traditional financial institutions like banks, emphasizing that “strict liquidity demands” are essential to safeguard redemption rights and to protect customers’ direct claims to the reserve assets held.
Furthermore, the ECB reiterated its worries regarding the assets backing these Tokens. An increase in demand for assets like treasury bills could alter their pricing, distort markets, and possibly challenge the Euro’s role in payments.
If EU legislators grant veto powers to the ECB, then private ‘Significant Asset Referenced Token’ (Global Stablecoin) issuers, such as Diem, may face additional regulatory challenges, even if they receive clearance from Swiss regulators.
The ECB is actively developing its own digital euro, aiming for a launch within the next four years.
