On Monday (March 28), EU lawmakers proposed an anti-money laundering (AML) regime that would require identification and screening for any cryptocurrency or stablecoin transaction, no matter how small.
Then on Wednesday (March 30), the other shoe dropped. A European Central Bank (ECB) unveiled a proposal that would exempt users of its central bank digital currency (CBDC) from AML checks for small transactions.
If passed, the proposal would give the digital euro a big advantage in the payments industry over both standard cryptocurrencies like bitcoin and dollar- or euro-pegged stablecoins.
That’s the point.
In that speech, Fabio Panetta, the prominent ECB executive board member who is spearheading its cryptocurrency policy initiatives, told the Committee on Economic and Monetary Affairs of the European Parliament that “a digital euro would provide people with a level of privacy equal to or higher than that of private digital solutions.”
Putting a threshold for full AML checks in place — perhaps 200 euros, he suggested — would allow a digital euro “to replicate some cash-like features and enable greater privacy for lower-value payments, which are usually low risk in terms of money laundering, terrorism financing and violations of relevant EU law.”
That would also make the offline transactions far easier to manage, Panetta told the committee, noting that retail stores payments, eCommerce and in person-to-person transactions are uses that the European public considers vital for a CBDC, according to a recent survey. The number one concern on that survey was protecting personal privacy.
Considering a transaction made in a merchant’s shop with a 200-euro banknote, Panetta said using a digital euro wallet “would be very similar to making a cash payment.”
Asking why different standards should apply, he said “the risk that it is used for money laundering purposes hardly seems higher than for a physical 200 euro banknote, especially if the chip requires biometric authentication before you can use it.”
While an initial know-your-customer (KYC) collection of identifying data would be collected when someone opens a digital wallet account, both personal identification and transaction data would only be accessible to the “intermediaries” in the payment processing industry who need it to complete transactions, Panetta said.
Less Tolerant
In his report to the European Parliament’s Economic and Monetary Affairs committee on Wednesday (March 30), Panetta left no doubt about the ECB’s opinion of cryptocurrency.
In a comment that encompassed both Russian sanction-busting and the staggeringly high energy requirements of bitcoin, Panetta called for a “less tolerant approach” towards bitcoin and other cryptocurrencies, CoinDesk reported.
Calling them “pure gambling,” Panetta said bitcoin and its ilk are “not used for payments, do not pay any dividend” and have “no economic activity behind them.”
“They have no social role,” he added.
Of course, bitcoin and stablecoins could have a role in the payments industry, which would give them a social role, if the ECB and EU lawmakers stopped making them harder to use.
This comes as the EU parliament votes Thursday (March 31) on a proposal to ban both anonymous crypto exchanges and crypto transactions outright.
The provisions to be added to the EU’s forthcoming Markets in Crypto Assets (MiCA) regulatory framework would have the effect of banning the decentralized exchanges, or DEXs, at the heart of decentralized finance.
See more: EU Parliament To Debate Blockchain Bill After Crypto Bill
It would outlaw any exchange “that is not established in any jurisdiction or does not have a central contact point or substantive management presence in any jurisdiction and that is unaffiliated with a regulated entity or that operates in the Union.”
But, it goes beyond DeFi transactions, requiring crypto-asset service providers like exchanges to gather KYC information on any transaction, regardless of amount — even those of privately hosted wallets.
This amounts to another way to make cryptocurrencies and stablecoins second-class citizens in the payments world, as it would scrap a previous proposal to give them parity with cash transactions, which have an AML/KYC reporting floor of 1,000 euros.
See also: EU Lawmakers to Vote on Tougher Crypto Transaction Requirements
This de facto ban on using private, non-hosted wallets matches a proposal made by outgoing U.S. Treasury Secretary Steven Mnuchin in December 2020, and resurrected by Sen. Elizabeth Warren, D-Mass., on March 8 to require exchanges and other virtual asset service providers, or VASPs, to collect and report and transactions with privately hosted wallets.
Read more: Warren Resurrects Calls for KYC Data from Private Crypto Wallets
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