Estonia’s Estcoin Abandoned As the ECB Trumps the IMF
Estonia has ditched plans to establish a national cryptocurrency, the Estcoin. Under pressure from the European Central Bank (ECB) and local monetary authorities, the progressive Baltic nation has ruled out the widespread use of a state-issued cryptocurrency pegged to the euro, restricting the proposed Estcoin to use by its e-residents.
European Central Bank Not Amused by Estonian Ambitions
Italian economist Mario Draghi, a former Goldman Sachs employee and current president of the ECB, slammed the Estcoin idea in mid-2017, stating that as a matter of law no eurozone member could use anything but the euro as its national currency. Estonia first announced plans to establish the Estcoin in August last year. In December, Kaspar Korjus, the head of the country’s e-residency program, reignited Estcoin hopes, albeit largely connected to the country’s digital residency program.
Estonia punches above its weight in technology and innovation. Home to only 1.3 million residents, it established the revolutionary e-residency program in 2014, allowing non-Estonians to start companies and conduct banking in the country. The program boasts over thirty thousand e-residents from over 150 countries.
IMF Willing to Entertain the Idea of State-backed Cryptos
The International Monetary Fund had been traditionally guarded about the emergence of cryptocurrencies, seeing them as a potential threat to financial stability and prone to use in crime and money laundering. At an event commemorating the 20th year of independence of the Bank of England in September last year, IMF chief Christine Lagarde issued a thinly disguised warning to central banks worldwide, saying that bitcoin could give “existing currencies and monetary policy a run for their money”.
However, the body has since warmed to the idea of “fighting fire with fire”. Deputy director of the IMF’s Monetary and Capital Markets Department Dong He appeared to endorse the idea of state-issued cryptocurrencies when he wrote:
“… central banks should continue to make their money attractive for use as a settlement vehicle. For example, they could make central bank money user-friendly in the digital world by issuing digital tokens of their own to supplement physical cash and bank reserves. Such central bank digital currency could be exchanged, peer to peer in a decentralized manner, much as crypto assets are.”
For Now, All Bets Are Off
Estonia is not the only country to indicate an interest in a state-backed cryptocurrency. Iran, Norway, and Switzerland have voiced plans to examine the feasibility of creating central bank-issued digital currencies, for different reasons. Swedish plans for a cashless society are widely known.
Venezuela has infamously established the petro, supposedly backed on a one-for-one basis by barrels of Venezuelan crude. The Maduro government’s history of economic mismanagement and imprudence means the petro faces an uphill battle to gain credibility. The petro is – genuinely – trustless.
But Estonia had appeared to be more advanced in creating a legitimate national cryptocurrency. The recent announcement by Siim Sikkut from the Ministry of Economic Affairs and Communications in Tallinn that the country would no longer pursue the idea of a cryptocurrency for Estonian nationals is a win for the ECB over the IMF.
However, given the IMF’s gradual warming to cryptos and Estonia’s unrelenting enthusiasm for all-things-tech, the Estcoin may one day eventuate as a national currency. Draghi may have beaten Lagarde & Co in this round. But one suspects it is not a knock-out blow.
Have your say. Is it only a matter of time before a government – excluding Venezuela’s for the purpose of debate – creates a national cryptocurrency to replace fiat? Which country will be first?
Images via Pixabay