Things that can’t go wrong in Europe

Europe knows that it will soon accept the digital euro. In order to become a global digital leader and avoid relying on the technological infrastructure of the United States and Asia, European policymakers and regulators must make gradual decisions.

A key stumbling block of European digital economy thinking is the so-called stable currency. Stablecoins can be issued privately, and may be accepted globally and have system relevance, thereby disrupting the long-established financial system. Therefore, today’s political discussions surrounding stablecoins are mainly concerns about financial stability and orderly monetary policy.

related: With mass adoption approaching, stablecoins have brought new difficulties for regulators

Current regulatory programs weaken innovation and benefit big banks and big technology

The EU’s Crypto Assets Market Regulation (MiCA) aims to become a comprehensive regulatory framework for crypto assets including stablecoins. As the European Parliament and member governments are working hard to deal with draft texts that bring some legal certainty, its current scope is constantly changing, possibly at a cost of considerable complexity. Therefore, the issuance of stablecoins in Europe is likely to eventually require a bank license, which benefits mature (not necessarily very innovative) financial participants. In fact, the overall regulatory burden of MiCA can be very expensive, and those with a lot of management resources are best able to comply, namely, big banks and big technology companies.

This is not to say that regulators should simply stop what they are doing, because we need to reduce risk and minimize negative externalities at all levels. However, European citizens and companies will want to fully participate in the global digital economy, and almost regardless of regulatory nuances, will require stablecoins and other tools. Citizens will expect consumer-friendly payment solutions to protect their privacy, and businesses will need programmable funds to modernize and expand. None of them should be driven to non-EU solutions or exchanges, which are usually unregulated and without consumer protection, simply because European regulations inadvertently stifle European innovations and solutions.

related: Europe awaits implementation of the regulatory framework for crypto assets

The global relevance of the euro also depends on its attitude towards stablecoins

Although Europe is worried and committed to its plans, stablecoins have become the core of the world’s digital economy, driving innovation, expansion and growth. Unsurprisingly, today’s leading stablecoin is pegged to the U.S. dollar. Every day, more than 100 billion U.S. dollars are used for digital transactions through protocols such as Tether (USDT) Or U.S. dollar coins (USDC); The daily equivalent euro transaction volume is close to zero.

Essentially, today’s stablecoin projects promote the global dollarization of the blockchain ecosystem by seamlessly and frictionlessly distributing American currency around the world. Of course, if we can start using the widespread digital euro, the same goal can be achieved.

The future digital economy will be characterized by increasingly diverse business models and use cases. It will require multiple payment systems and solutions, involving digital currencies running on multiple infrastructures, and they will coexist and complement each other. Not only must Europe recognize the importance of the digital euro to the future of the European economy, but it must also recognize the demand for different types of digital euros. Ideally, this should include not only the Euro Central Bank Digital Currency (CBDC), but also separate, euro-referenced stablecoins and other models.

Promote innovation in Europe by encouraging diversity and a level playing field

In order to achieve global digital leadership, Europe needs a diversified and competitive digital ecosystem. This will enable the emergence of local solutions to compete with global giants and flexible innovators from East and West. Regulatory requirements need to be balanced and proportionate for all participants, and should not have a negative impact on start-ups, grassroots innovators and small companies. Maintaining a truly level playing field is very important to promote the dynamic digital development needed in Europe, and an overly strict or punitive regulatory framework will only strengthen the existing technological and financial oligopoly.

The EU is a large and highly developed economic group with huge digital potential, but becoming the world’s leading digital economy is not a foregone conclusion. Wrong political and regulatory choices in Europe will not prevent innovation and investment in stablecoins and other distributed ledger infrastructure and solutions, but will only drive them out of the EU and prevent them from returning.

The EU is at a critical juncture. MiCA will become the benchmark regulation in other jurisdictions, either follow or avoid. Europe needs to be a catalyst for digital currency, not an inhibitor. If it is to maintain geopolitical and technological relevance, it needs to support diversified digital euro solutions. If Europe can get rid of its narrow and defensive perspective and take a broader view of stablecoins that reflect the reality of its diverse structure, economic functions, technical design, and governance requirements, then it can become the leader of the global digital economy in the future.

This article is created by Agata Ferreira, Robert Kopic with Philip Sander.

The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article is for general reference only, and should not and should not be regarded as legal advice.