(For German version click here)
In the last couple of weeks, the pressure on Facebooks stablecoin project Libra intensified. Government representatives like the German minister of finance Olaf Scholz and his French counterpart Bruno LeMaire see numerous problems and fear systemic risks if private companies offer their own means of payment as an alternative to national currencies. They therefore threaten Facebook with prohibiting Libra in Europe even prior to the project’s implementation. According to the current plan, Libra is supposed to be covered by a government bonds and currency basket in order to ensure value stability of the coin. According to the current plan Libra is going to be administered by a swiss-based association with members like Paypal, Visa and Mastercard that are linked to the payment industry but also companies like Ebay, Uber and Spotify. The basket-mechanism is supposed to ensure value stability. A direct connection to a specific national currency as e.g. the Euro is not planned. But how exactly could politics prohibit Libra and comparable stablecoins?
How Could the Prohibition of Libra be Justified?
The prohibition of Libra or other Stablecoins within the constitutionally organized European Union would require a statutory basis. According to the Treaty of the Functioning of the European Union, only the European Central Bank has the power to authorize the issuing of euro banknotes which are the sole legal tender in the union. Libra would neither claim to be a legal tender nor would it be denominated in euro. The German Bundesbank Act penalizes on a national level the unauthorized issuing of monetary units even if they are not denominated in euro. If the term “monetary units” refers to blockchain units or only to the explicitly stated value tokens, cash money coins, bank notes or other certificates is questionable. Regardless of this a prohibition can only be stipulated in the cases where the issuing of alternative means of payment is not explicitly allowed by law.
Could Libra be E-money in the Sense of the Second European E-money Directive?
The prohibition of Libra in Europe could therefore be ruled out, if the stablecoin would meet the requirements for a qualification as e-money according to the second European E-money Directive, the Libra Association as the Libra issuer met the authorization requirements to conduct e-money-business and would additionally apply for such authorization in a EU member state. E-money is defined by the second E-money Directive as an electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions and which is accepted by others than the issuer. A cryptocurrency that is designed as a means of payment and that is issued by a central emitter it can be purchased from and re-exchanged with can therefore in many cases be defined as e-money. As stated, e-money is a recognized manifestation of money under EU law. If Libra and the Libra Association would therefore fulfill the aforementioned requirements, a prohibition of Libra would at least legally be hard to justify. That scenario would however require that Libra would be designed as a claim against the Libra association and could be purchased and re-exchanged at any time.
Attorney Lutz Auffenberg, LL.M. (London)