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25th Sep 2017

Focus

Estonia tests water for own virtual currency

  • An exchange office in Tallinn. (Photo: Peter Teffer)

People around the world can already become a digital resident of Estonia. Perhaps in the future they will also be able to pay into a new Estonian digital currency.

On Tuesday (22 August), the managing director of Estonia's e-Residency programme, Kaspar Korjus, suggested that the Baltic country could introduce a virtual currency for its e-residents, comparable to existing so-called cryptocurrencies, such as Bitcoin and Ethereum.

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  • Estonia said goodbye to the kroon to introduce the euro. Would it introduce a new digital version of the kroon? (Photo: European Parliament)

“What would happen if a country, such as Estonia, issued its own crypto tokens?” wrote Korjus in a blog post.

“It’s clear that there is strong interest in cryptocurrencies and other blockchain-based solutions among our growing community of e-residents,” he said.

Blockchain is the cryptographic technology that makes digital currencies such as Bitcoin possible.

Estonia has almost 22,000 e-residents, 3,670 of which own a company in Estonia.

The virtual currency could be called estcoins, Korjus suggested, although in the same post he also noted that it might not be the right name “because its use could grow far bigger than Estonia”.

“In time, estcoins could also be accepted as payment for both public and private services and eventually function as a viable currency used globally,” he wrote.

The Estonian government said, however, that the proposal is “not an official fixed plan or policy yet”.

“This is an innovative proposal by our e-Residency team, as one among many possible further directions of the programme,” said Siim Sikkut in an e-mailed statement.

Sikkut is deputy secretary general for IT and telecoms at the Estonian ministry of economic affairs.

“Rather, the blog piece was intended to test the waters and initiate discussion - would this idea be appealing? How to make it happen?”

Sikkut noted that the same interest-gauging happened before the launch of the e-Residency programme.

Legal tender

However, it is unclear whether Estonia would in fact be allowed to introduce a virtual currency - at least as legal tender.

Estonia is one of the 19 EU countries in the eurozone. It joined on 1 January 2011, saying goodbye to its former currency, the kroon.

Economist Daniel Gros, of the Centre for European Policy Studies, told EUobserver via e-mail that to his understanding the plan "would basically provide the seeds for a (national) sovereign wealth fund".

He said there was little in EU law to prevent governments from accepting electronic currencies, but that the "key threshold" is whether the currency is legal tender.

"Throughout the euro area you have to be able to extinguish a debt with euros. Even today, the creditor might accept dollars or anything else, but euros he has to accept," said Gros.

No exceptions

“Article 128 of the Treaty on the Functioning of the EU (TFEU) specifies that euro banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union,” a spokesperson for the European Commission told EUobserver by e-mail.

“There are no exceptions to this rule.”

The spokesperson said the commission had seen the press reports about estcoin, but noted it is “not aware of any official proposals”.

Even in Estonia, the idea is still very fresh.

A spokesman for the Estonian Centre Party, the largest coalition partner, told EUobserver that it had not yet been discussed in the party.

Spokesman Viljar Raask for the Bank of Estonia said the proposal “needs to be more concrete” before it can have an opinion.

“Only if it is more fleshed out can we weigh the pros and cons,” said Raask.

“The legal tender is the euro,” he added.

Happy with the euro

The second-largest coalition partner, the centre-left Social Democratic Party (SDE), also noted “we have the euro”.

“It's a very interesting idea, but our currency is the euro and, in our opinion, the euro is an excellent currency,” said Toomas Sildam, SDE's spokesman.

When asked whether the party would support a second currency like estcoin, Sildam merely said, “We are very happy with the euro.”

Digital currency, the Airbnb and Uber killer

The digital currency Ethereum allows people to run so-called smart contracts, potentially creating a decentralised sharing economy, and could be the beginning of the end for firms like Uber and Airbnb.

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