EU to look into issuing public digital currency

The illustration shows toy figures on representations of the virtual currency before the EU flag and the Facebook Libra logo. Reuters text, Caption text, Caption text. Reuters
Updated 06 November 2019

EU to look into issuing public digital currency

  • Draft urges the bloc to develop a common approach to cryptocurrencies

BRUSSELS: The European Central Bank should consider issuing a public digital currency, an EU draft document said, after plans by Facebook to introduce a private one met with a hostile response from global regulators.

The social media firm said in June it planned to launch its Libra digital currency next year. But France and Germany said in September it posed risks to the financial sector, and backed developing a public alternative.

The draft EU text, seen by Reuters on Tuesday, also urges the bloc to develop a common approach to cryptocurrencies, including possibly banning projects deemed too high-risk.

In its current form, the document — which could be adopted by EU finance ministers next month — would escalate an EU regulatory campaign against cryptocurrencies, which have so far been only partly regulated in some EU states.

“The ECB and other EU central banks could usefully explore the opportunities as well as challenges of issuing central bank digital currencies including by considering concrete steps to this effect,” said the draft, prepared by the Finnish EU presidency and subject to possible amendments.

HIGHLIGHT

Digital currencies like Libra are usually backed by traditional money and other securities, while crypto coins like bitcoin are not. Both are cryptocurrencies.

Digital currencies like Libra — also known as stablecoins — are usually backed by traditional money and other securities, while crypto coins like bitcoin are not. Both are cryptocurrencies.

The draft text could be discussed by EU finance ministers on Friday, according to the agenda for that meeting, with a view to its adoption at their next gathering on Dec. 5.

ECB board member Benoit Coeure said in September the bank should “step up” its thinking on a public digital currency.

An ECB official said that, in its most ambitious version, the project could allow consumers to use electronic cash, which would be directly deposited at the ECB, without need for bank accounts, financial intermediaries or clearing counterparties.

They are all needed now to process digital payments, but might no longer be if the ECB took over their functions, slashing transaction costs. But that raises technical challenges, and opposition from banks is likely.

Until Facebook launched its project in June, regulators had largely ignored stablecoins because of their tiny size. The largest, Tether, is far smaller than bitcoin.

But Libra’s potentially huge reach — it could be used by billions of Facebook users — has spooked regulators.

As part of a global push against Libra, the G7 group of wealthy nations said last month that stablecoins should not be allowed to launch until international risks they posed were addressed.

Under regulatory pressure, Libra has lost a quarter of its original members, including payments firms Visa and Mastercard.

The EU document reiterates the G7 concerns over the risks that private currencies pose, citing money laundering, consumer protection, the functioning of payment systems, taxation and cybersecurity.

But in recommending an outright ban on risky projects and a move toward a public digital currency it goes further.

“At the very least, we need a robust regulatory framework to deal with virtual currencies,” said Markus Ferber, a German conservative who leads on financial matters the largest EU Parliament grouping.


Ericsson hit by higher 5G costs and weaker US market

Ericsson CEO Borje Ekholm. The company’s position as a leader in 5G has not protected it from costs associated with the technology. (Reuters)
Updated 5 min 26 sec ago

Ericsson hit by higher 5G costs and weaker US market

  • Ericsson’s adjusted quarterly operating earnings rose to 5.7 billion crowns ($600.2 million) from 2.6 billion a year earlier, but were down from 7.4 billion the previous quarter

STOCKHOLM: Sweden’s Ericsson reported a smaller-than-expected rise in fourth-quarter core earnings on Friday and said higher costs would spill over into 2020 as the telecoms equipment maker looks to exploit its leading position in super-fast 5G networks. Its shares fell more than 6 percent in early trading.
After a number of lean years, Ericsson has been boosted by the roll-out of 5G, particularly in the US.
But while 5G has helped sales, it has increased costs. Ericsson has also opted to take on strategically important clients to gain market share, betting a hit on margins in the short term will help to deliver longer-term profitability.
The company recently bought the antenna and filter business of German’s Kathrein to boost its 5G portfolio and said costs and investments related to the deal would weigh on margins through 2020.
Increased investments in digitalization and more spending on compliance — after a $1 billion payment to resolve probes by US authorities into corruption — are also expected to mean somewhat higher operating costs in 2020.
Nevertheless, CEO Borje Ekholm said Ericsson was on track to deliver on its 2020 targets of an adjusted operating margin of more than 10 percent and sales of 230 to 240 billion ($25.1 billion) Swedish krona.
Ericsson is fighting rivals Nokia and Huawei to take the lead in the roll out of 5G networks, which are expected to host critical functions from driverless vehicles to smart electric grids and military communications.
That has led the US to blacklist Huawei and launch a worldwide campaign to try to persuade allies to ban the Chinese firm from their 5G networks, alleging its equipment could be used by Beijing for spying — which Huawei denies.

BACKGROUND

While the US is an early 5G adopter, China is expected to start its roll out this year and Western Europe after that.

The UK is expected soon to make a final decision on whether to allow Huawei equipment in its 5G mobile networks, while Germany may also rule on the matter during the spring.
North America has been the biggest market for 5G so far, boosting Ericsson’s sales, but the company said demand slowed in the fourth quarter as the proposed merger between Sprint and T-Mobile hit their spending.
“It was a significant impact in a small part of the market which means the quarter came out negative in North America,” Ekholm said. “But in general demand is very strong there.”
By 2025, the GSMA telecoms industry lobby group estimates operators globally will have spent $1 trillion building up 5G networks, offering a huge jackpot for the leading suppliers.
Ericsson’s adjusted quarterly operating earnings rose to 5.7 billion crowns ($600.2 million) from 2.6 billion a year earlier, but were down from 7.4 billion the previous quarter.