Europe’s most powerful bank boss has strongly criticised Estonia’s idea of launching a digital currency backed by the state.
In a report by Reuters, Mario Draghi, the president of the European Central Bank, which is responsible for the euro currency, has said that no country in the euro zone can launch its own cryptocurrency.
The euro zone includes the countries within the European Union which use the euro as their currency. Some EU countries, such as the UK and about five others, still use their own currency. Estonia uses the euro.
No country in the EU, nor indeed the rest of the world, has issued a digital currency that is officially backed by the respective nation’s central bank.
This is partly because the whole idea of digital currencies, or cryptocurrencies, which are based on blockchain technology, is that they do not have a central authority.
Blockchain is a vast system of interconnected computers on the internet which record transactions, such as those involving cryptocurrencies.
The first – and still the most valuable – cryptocurrency was bitcoin, launched in 2009, but many other have been launched since then, some by large, reputable financial institutions.
Cryptocurrency transactions are currently running at a rate of hundreds of millions of dollars per day, sometimes reaching a billion dollars a day – and it’s growing.
But governments – which all support a financial infrastructure that has a central bank which issues currency – have not so far been persuaded to even incorporate cryptocurrencies into the official financial system.
Many countries are looking into the issue, and some are providing tacit support, but none have gone as far as officially authorising digital currencies.
China and Russia are the latest countries in which the relevant authorities are debating the blockchain-based currency debate.
Some in the financial industry are supportive, while many in the government are against it.
For Estonia, with a tiny population of 1.3 million, the idea of introducing a digital currency may have appealed because it would be a way of raising money.
The country already has an digital residency programme, e-Residency, through which anyone in the world can become a virtual resident of Estonia without having to even visit the country.
This enables the remotely located digital residents of Estonia – who could be located outside of Europe – to conduct business within the EU.
Kaspar Korjus, managing director of Estonia’s e-Residency programme, was the main proponent of the idea of launching an official Estonian cryptocurrency, provisionally called the “estcoin”.
But now, Draghi’s comments may have put a stop to all that.
In comments reported on US News, Draghi addressed the issue, while sidestepping another issue in Italy, where some are suggesting the country should issue small-denomination interest-free bonds to enable transactions to avoid having to use the euro.
Draghi says: “I won’t comment on the Italian intention but I will comment on the Estonian decision: no member state can introduce its own currency.
“The currency of the euro zone is the euro.”
Estonia is currently canvassing online opinion about the proposed estcoin, and will probably continue to do so. But without the backing of the EU, it’s probably unlikely to be able to make the estcoin an official currency.