EUROPE’S CENTRAL BANKS: “IT IS IMPOSSIBLE TO IDENTIFY USERS’ LOCATIONS RELIABLY” — THEIR FIX IS TO COLLECT MORE DATA — AND TO STOP FORCING STABLECOIN RESERVES INTO THEIR BANKS

The European System of Central Banks, the ECB plus the EU’s national central banks, has published its answer to the European Commission’s review of MiCA, Europe’s crypto law. One sentence is worth reading twice: “In practice, it is impossible to identify users’ locations reliably and classify transactions by purpose due to the structural features of DLT.” DLT means blockchains.

That sentence is about a rule already on the books. MiCA caps how much a stablecoin tied to a foreign currency, like a dollar coin, can be used for payments inside the EU: 1 million transactions and €200 million a day. To enforce a cap like that, you have to know which users are in Europe and what each payment was for. The central banks say that cannot be done reliably. Their answer is not to drop the rule. It is “further reflection on ways to enhance the existing MiCAR reporting requirements,” including “collecting data on activities outside the EU.”

The same paper wants to move stablecoin reserves. MiCA now makes issuers hold at least 30% of reserves as bank deposits, 60% for the biggest coins. The central banks warn that a sudden pull of those deposits “could have idiosyncratic effects for the relevant banks, potentially becoming systemic,” and want liquidity floors instead. Put the two together. They cannot see who is using the coins, so they want more data. They do not trust the coins near their banks, so they want the money moved. When the watcher says it cannot see, the answer is never less watching. At the time of this writing, bitcoin was $86,276.