Published: 16 October 2019 Author: Stefan Talmon DOI: 10.17176/20220113-153522-0
On 18 June 2019, U.S. social media company Facebook announced plans for offering to its 2.4 billion users a new blockchain-based global digital currency called Libra in 2020. As a stabelcoin cryptocurrency, Libra is to be backed by traditional assets such a money deposits, short-term government securities or gold.
Germany opposed Facebook’s digital currency from the outset. On 16 July 2019, Federal Minister of Finance Olaf Scholz declared:
“The issuance of a currency does not belong in the hands of a private company because this is a core element of State sovereignty. The euro is and remains the only legal means of payment in the euro area. I consider it decisive that we ensure financial stability and consumer protection. As a matter of principle, we have to prevent the opening of gateways for money laundering and terrorist financing.”
It was reported that the Federal Finance Ministry was examining ways to prevent Libra from becoming an alternative to State-issued currencies and was coordinating its efforts with its allies and, in particular, France. On 13 September 2019 the French and German Finance Ministers issued a joint statement after a meeting of eurozone finance ministers in Helsinki. The joint statement read as follows:
“France and Germany reaffirm their willingness to tackle the challenges raised by cryptocurrency and so-called stable coin projects: financial security, investor protection, prevention of money laundering and terrorism financing, data protection and financial and monetary sovereignty. A working group has been tasked by the G7 to analyse these challenges.
Its final report will be presented in October.
As already expressed during the meeting of G7 Finance Ministers and Central Bank’s Governors in Chantilly in July, France and Germany consider that the Libra project, as set out in Facebook’s blueprint, fails to convince that those risks will be properly addressed. We believe that no private entity can claim monetary power, which is inherent to the sovereignty of Nations.
We acknowledge that there is a need to improve the effectiveness of international payments. At European level, we call today on banks to work on improving European payment systems.
We encourage European central banks to accelerate work on issues around possible public digital currency solutions.
France and Germany are committed to enabling appropriate solutions to protect citizens and financial stability.”
Federal Finance Minister Scholz reiterated the Germany’s opposition to private digital currency projects. Upon the adoption of the Federal Government’s blockchain strategy on 18 September 2019, he declared:
“We want to be at the forefront of innovation, and we want to reinforce Germany’s position as a leading technology hub. As part of the internet of the future, blockchain technology can play a key role in our efforts. At the same time, it is essential to protect consumers and State sovereignty. One of the core activities of a sovereign State is to issue a currency. We will not cede this task to private companies.”
As an alternative to private cryptocurrencies, Germany favoured a State-issued digital currency, commonly dubbed the “EuroCoin”, the “e-euro” or the “digital euro”. On 3 October 2019, Federal Finance Minister Scholz stated that “such a payment system would be good for the financial center Europe and its integration into the world financial system. We should not leave the field to China, Russia, the U.S. or any private providers.”
Germany is not playing the sovereignty card very often. It is thus remarkable that the Federal Minister of Finance is outing himself as a staunch defender of monetary sovereignty. State sovereignty is closely intertwined with, but not limited to, control over territory and people. It has long been recognized that control over monetary affairs is a critical part of State sovereignty. Back in March 1884, the U.S. Supreme Court held that the power “to establish a national currency, either in coin or in paper, and to make that currency lawful money for all purposes, as regards the national government or private individuals” was “one of the powers belonging to sovereignty.” To coin and paper, today currency in electronic format must be added. In a globalized economy monetary sovereignty is as important as territorial or personal sovereignty. Allowing private companies to establish a global digital currency as an alternative to State-issued currencies may affect the ability of States to manage their economy through monetary policy and, ultimately, undermine their sovereignty.
Category: International economic law