Sunday 10 September 2017

Estonia irritates EU with idea of national "EstCoin" cryptocurrency

Estonia irritates EU with idea of national "EstCoin" cryptocurrency Kaupo Kalda, CC licence

As much as foamy-mouthed Brexiteers want to keep the good old British Pound, Estonia has opened something of a Pandora's Box with a question that had to come sooner or later. If the world is embracing cryptocurrencies, what is the point of national monetary policy?


The thinking comes from Estonia's interesting and rather exciting e-residency programme. With almost 400 companies established through the system, it is the first digital ID programme of its kind in the world. The Estonian Government's E-residency agency has been overtly plugging the scheme to British small businesses, with a campaign called How to stay in (to clarify, the scheme helps to facilitate the creation of an Estonian-registered business which would be valid within the EU single market, rather than any EU membership benefits from a residential perspective).

E-residency chief Kaspar Korjus floated the idea on the programme's blog...

After all, people do already talk about ‘investing in a country’, but what they really mean is investing in opportunities related to that country — such as companies, property or bonds. You may believe in the future of the country and want to help it succeed, but you can only invest in it indirectly at present.
We already know that many people become e-residents simply because they are fans of our country, our technology and our ideas, and being an e-resident enables them to show their support.
A government-supported ICO (Initial Coin Offer) would give more people a bigger stake in the future of our country and provide not just investment, but also more expertise and ideas to help us grow exponentially.

... and the idea gained some traction online, reaching publications such as the FT in terms of coverage. 

However, the European Central Bank has poo-poohed the idea. When the idea was put to ECB President Mario Draghi, his rather terse response was

The currency of the Eurozone is the euro.

Draghi is, of course, correct, and Estonia is within the Eurozone. However, what Draghi infers is that the fiat currency of the Eurozone is the Euro, not the crypto currency. And, this is where issues start to conflict. If Korjus's proposed "Estcoin" becomes fiat currency - in that it has an economic utility on a par with the Euro - then Draghi is merely calling out that there's room for only one fiat currency in the Eurozone. However, if Estcoin is something else - a way to manage E-residencies on the Blockchain, for example - then it may have utility which is not fundamentally the same as the Euro.

The ball is really in the ECB's court with this one. Korjus may not have wanted to do this, but the issue creates a big problem in the ECB - what should they do about cryptocurrencies? As London is currently killing it in fintech (something which could be rather resilient to any post-Brexit downturn), the ECB appears to be way behind the times. Draghi needs to stop draghing his heels and commit to some fundamental facts about the ECB and cryptocurrencies. Should there be a Eurozone-wide cryptocurrency? Should it have fiat parity, or be something else? What is the future of the Euro while such innovations put pressure on the raison d'etre of the currency?

While there are no answers, Estonia is perfectly within its rights to continue to ask questions.

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