Monday

28th Sep 2020

Germany adopts blockchain strategy and says no to Libra

  • 'A core element of state sovereignty is the issuing of a currency, we will not leave it to private companies,' said German finance minister Olaf Scholz (Photo: BeatingBetting.co.uk)

The German federal government passed on Wednesday (18 September) a comprehensive blockchain strategy which Berlin hopes will foster the technology and mitigate the risks regarding its implementation.

The strategy aims to unleash the potential of blockchain and distributed ledger technologies (DLT) in the country, supporting the digital transformation in several sectors and preventing risks related to their use and data abuses.

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A blockchain can be understood as a shared database highly-secured due to its structure that can reduce transaction costs while increasing transparency - blockchain is just one type of distributed ledger technology, which is essentially a decentralised system.

According to the plan, the developments in Germany are in line with the EU's strategy, which states that "only with a perfect digital single market, Germany will remain globally competitive".

"We want to be at the forefront and further strengthen Germany as a leading technology location," German finance minister Olaf Scholz said.

Although blockchain was initially used for Bitcoin and other cryptocurrencies, there are countless fields of application for these technologies in different sectors such as energy, mobility or health.

The German comprehensive blockchain strategy also aims to protect consumers and state sovereignty - two concerns voiced by several authorities regarding the implementation of new virtual currencies in European markets.

"A core element of state sovereignty is the issuing of a currency, we will not leave it to private companies," said Scholz.

Later this year, the German government will also try to propose legislation which will allow blockchain-based electronic bonds, reported Reuters.

Push on blockchain technology

According to a report released last July by the EU Parliament, "blockchains' crypto-economic incentive structures might have the potential to influence the current economics behind data-sharing".

However, the approach towards the implementation of these new technologies is different in each member state.

Last year, the UK adopted a fintech sector strategy, which sets out plans for preserving the financial tech hub of Europe in the UK while increasing their influence in the sector.

In Estonia, over 95 percent of the data generated today by hospitals and doctors is digitised, and blockchain technology is used to secure the health records.

The southern European states – France, Italy, Spain, Malta, Cyprus, Portugal, and Spain – signed a joint declaration last December to promote the adoption of blockchain in Europe to "transform" their economies.

"We believe that distributed ledger technologies can result in further democratisation of the European economic model," said the document.

No regulation, no Libra

During an informal meeting with the finance ministers of the EU that took place last week, France and Germany made clear that Facebook's Libra currency has significant risks to the financial sector in Europe.

European Central Bank board member Francois Villeroy de Galhau said on Tuesday that "stable coins" like Facebook's Libra are likely to face a tough regulatory approach as "this new situation is a major challenge for regulators and supervisors".

"Stable coins are quite different from speculative assets like Bitcoins. However, regulators will have to keep a very close eye at the global level and believe me, we will do it," Villeroy said.

The co-creator of Facebook's cryptocurrency Libra, David Marcus, posted on Monday on his Twitter that "Libra is designed to be a better payment network and system running on top of existing currencies, and delivering meaningful value to consumers all around the world".

"We will continue to engage with central banks, regulators, and lawmakers to ensure we address their concerns through Libra's design and operations," he added.

The German federal government is aiming to control the public offering of certain virtual currencies that do not fall inside the EU directives - electronic money or markets in financial instruments directive.

However, the result of the consultation carried out by the German government suggests that stakeholders prefer predominantly a European regulation to address cryptocurrencies.

France urges EU virtual currency rules amid Libra risk

France has urged the EU to introduce a framework for the regulation of cryptocurrencies, after the introduction of the new Facebook virtual money 'Libra' threatens the financial stability of the EU.

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German MEP and member of the Economic and Monetary Affairs Committee, Markus Ferber, warns of four separate threats from Facebook's Libra. A good moment to kick off the debate would be this week's G20 summit.

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Facebook, a US tech giant known for abusing its users' private data, has filed a complaint at the EU court in Luxembourg, saying the EU Commission's data request was too broad and would affect its employees' medical and financial information.

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