European authorities look at national digital currencies: love and fear

Original: Fortune , the original author: Geoffrey Smith

Source: Odaily Planet Daily Translator: Yin Yin Tang

Europe is recognizing that failure to modernize the financial system not only challenges its competitiveness, but also threatens its sovereignty.

Boycotts in Europe have hit Facebook's global stablecoin project, Libra, and US companies such as Visa and Mastercard may be the "next target." Fortunately for these credit card companies, the European Central Bank's alternative has not yet come out and is still in progress.

In a speech earlier this week, Benoit Coeure, a member of the ECB's executive board, issued a clear warning. As the U.S.'s intent to weaponize its global dominance of the global financial system has become increasingly prominent, European authorities now view U.S. payment companies as a potential threat to financial stability in the euro area. Coeure noted that in recent years, Visa, MasterCard and American Express ) Account for about two-thirds of credit card payments in the euro area.

Coeure said at a conference in Brussels on Tuesday: "The EU may be more vulnerable to the risk that monetary power in other countries is not only used to protect the EU's best interests, but even to harm the EU's interests."

Earlier this month, European Commission deputy president Valdis Dombrovskis warned of the same threat: "It is clear that for certain strategic technologies, the ability to drive cutting-edge innovation will determine our sovereignty as a continent .Payment is one of these strategic technologies. "

The Dombrovskis project is described as an example. Given Facebook's dark history of mishandling data, the Commission and the European Central Bank agreed that such entities were extremely unsuitable for pursuing monetary projects. But Dombrovskis has to admit that Facebook is providing a service with real demand, and Europe has no obvious answer to this.

"This clearly shows that (Europe) there is a gap in providing cheap, fast and convenient payments. This is the direction we should work towards," Dombrovskis said.

Means of payment = policy tool?

"They (European authorities) have realized that Europe has no say when it comes to large-scale technologies and platforms and the front-end of payment infrastructure," said Teunis Brosens, a digital currency expert at the ING Group in Amsterdam. .

Although Dombrovskis mentions Facebook, analysts believe that what really scares the European Commission and the European Central Bank is that the U.S. government will impose secondary sanctions-or impose them on countries that trade with the ultimate goal of U.S. penalties, such as Iran. Sanctions—the intention of being a tool of foreign policy is becoming increasingly apparent.

The controversy surrounding Iran this year is an extreme illustration of Europe's weakness in this regard. When U.S. President Donald Trump imposed new sanctions on the Islamic Republic, European companies, including Siemens and Airbus, had no choice but to disrupt business with Iran, as their payments business was based in Belgium The SWIFT Information Network, which has Bank of America representatives on its board of directors, is therefore within the purview of the US Treasury.

Banks that handle payments for these companies could face billions of dollars in fines from BNP Paribas in 2014 and the risk of being excluded from the vital dollar financing market. Analysts at the European Council for Foreign Relations (ECFR) estimate that the value of the business lost to the relevant EU companies is well over 20 billion euros.

"It is clear that European governments need to respond better to secondary sanctions," Ellie Geranmayeh and Manuel Lafont Rapnouil, senior policy researchers at ECFR, said in a policy briefing earlier this summer. "European countries need to assure businesses, They can do business within the framework of EU law and policy. "

Although the threat of the United States to punish Iran cannot be completely eliminated, the digital currency created by the European Central Bank and available to the Iranian Central Bank can theoretically provide a way for European companies to do business with Iran without using the US financial system.

"It's all politics, it's all geopolitics," Brosens of Holland International said.

PEPSI in progress

However, in the short term, the corresponding solution will eventually have to be found in the more general retail payment business.

Coeure's speech did not make any new breakthroughs in creating a digital version of the euro. The European Central Bank still has serious contradictions in this project. German conservatism has prevented the European Central Bank from embracing a cashless future. Navia is exploring a cashless future, and the situation in Britain is slightly better.

Brosens said that what's new in Coeure's presentation is how clear his support is for a new project to create a new European standard for digital payments. The project is called the Pan-European Payment System Initiative, or PEPSI for short. Coeure said the plan could eventually create a local credit card brand that would compete with US giants and China UnionPay.

"The European Central Bank really wants PEPSI to be successful and fast." Brosens said.

PEPSI is not even officially launched. According to reports, many participating banks, such as BNP Paribas and Deutsche Bank, were reluctant to confirm their participation in the project. An Agence France-Presse report earlier this month stated that this is because the real power behind PEPSI is the European Central Bank itself, not the bank-which is in line with Coeure's vision of an "industry-led pan-European retail payment solution" Somewhat inconsistent.

Less popular TIPS

The European Central Bank and its regulated banks have been vying for payments in the euro area for years, leading to slow progress in launching instant payments in the region. Brosens pointedly pointed out, "Unfortunately, past coordination initiatives have failed to explore the important economies of scale offered by a single market."

The European Central Bank finally launched its Target Instant Payment System (TIPS) a year ago, but it still has only 27 participants. TIPS provides services like PayPal, allowing individuals and companies in Europe to transfer money to each other in seconds, regardless of whether a local bank is open or not.

TIPS participants include Unicredit and two of Spain's largest banks, Santander and Spanish Bank of Spain (BBVA), but there is no major German bank involved and major participation from France There is also only one, namely its savings bank giant BPCE.

These banks seem to prefer their own real-time payment system, which was launched throughout the euro area in 2017 through a company called EBA Clearing. When the TIPS was launched, the German Association of Public Sector Banks had bluntly stated that the European Central Bank "doesn't always listen to banks' interests."

Amidst the tense atmosphere at the time, the Eurozone's efforts to seek relief from companies such as ApplePay, Alipay, UnionPay and Visa seemed destined to be delayed for some time. Even so, as fierce crypto fans continue to entertain themselves with projects designed to connect future trade between colonized planets, digital currencies are a more serious issue for related institutions than ever before.