e-Estonia’s Estcoin proposal shot down by ECB: saying “blockchain” doesn’t let you do a parallel currency

Estcoin is a proposal for a cryptocurrency — or possibly an ICO — that would be accorded some sort of official status in Estonia. The point is nothing to do with crypto, and a lot to do with working around EU rules.

The idea was floated by Kaspar Korjus, managing director at Estonia’s e-Residency, a programme to give official Estonian — and hence EU — status to non-citizens for business purposes. Izabella Kaminska points out that “digital nomad” is a euphemism for “the offshore financial system” and that Estonia, being tiny, could quite do with attracting investment with a spot of regulatory arbitrage.

Korjus proposes an ICO as a government fundraiser — so what we have is a different sort of government bond issue. The key point is that it probably wouldn’t technically be debt under EU rules on how much bond debt member countries are allowed to have.

People are putting hundreds of millions of dollars into underspecified ICO proposals that would go nowhere if they were conventional security offerings. So the value proposition for an Estcoin ICO would be “we’re a sovereign country with a decent credit rating for our size.” Which is pretty attractive, especially compared to some of what’s put forward as an ICO.

Estcoin is not quite, but almost, a proposal for a parallel currency. Korjus says “in time” it might become one, be good for government debts and so on, and even “eventually function as a viable currency used globally,” which I’m sure would please the country running it.

(Assuming a blockchain with sufficient transaction capacity can be found, or started, to run it on. Ethereum was the suggested platform for an earlier version of the idea, but that chain’s full more and more often. At least it’ll be more blockchainy than Estonia’s official Blockchain™ platform, KSI Blockchain, which doesn’t actually have a blockchain in it.)

EU institutions in general will be less than impressed. When Silvio Berlusconi proposed a parallel currency for Italy (though not a crypto) a week before, the European Commission shot it down, bluntly stating that there was one legal currency in the Eurozone, with “no exceptions to this rule.” Berlusconi said his proposal could work fully inside EU laws, but it’s not clear anyone outside Italy agrees.

European Central Bank President Mario Draghi similarly dismissed the notion of Estcoin as currency at his regular press conference today:

I won’t comment on the Italian intention but I will comment on the Estonian decision: no member state can introduce its own currency. The currency of the eurozone is the euro.

The problems won’t just be legal — Berlusconi’s proposal led to a sell-off of Italy’s bonds, even though his party is presently in opposition, so the markets are unlikely to react well either.

If this idea does go anywhere — and Korjus is still keen — I expect they’ll try to frame it as a bond issue and stress that it’s not a currency and won’t be a currency, definitely, for sure.

It’s not clear what would happen when the ICO bubble ends and the tokens lose value for speculators — if there would be any blowback on Estonia’s reputation, either with e-residents or bond markets. Or if they’d treat it as easy come, easy go.

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