Can a Government Introduce a Crypto-Currency? Estonia Says Maybe

(Bloomberg) -- Estonia’s prime minister urged caution but didn’t rule out a controversial idea to create a crypto-currency in the eastern European country where Skype was born.

Premier Juri Ratas echoed concerns voiced by the central bank and other regulators, who fret that reports about the potential project, dubbed Estcoin, risk damaging the Baltic nation’s reputation. But the 39-year-old said his cabinet hasn’t yet considered the topic, which was raised last summer by a junior government official.

“Estonia is open to challenges,” Ratas said Tuesday in an interview in the capital, Tallinn. “But this presumes financial regulation must be very thoroughly considered in terms of what it is exactly.” 

The country of 1.3 million people is one of of the most technologically savvy in the continent’s ex-communist east, turning to computers for everything from filing taxes to voting in elections. It even offers foreigners access to its digital infrastructure, via its e-residency program. The boss of that initiative wants to offer the crypto-currency to the more than 27,000 people -- mainly from Finland, Russia and Ukraine -- who use e-residency.

Initial coin offerings -- where backers finance crypto-currency startups issuing digital tokens -- topped $4 billion last year, despite escalating warnings from the U.S. and other countries of potential risks and fraud.

ECB Criticism

European Central Bank President Mario Draghi criticized the Estcoin proposal in September, saying the euro can be Estonia’s only currency. In an interview this month with German newspaper Boersen-Zeitung, Ardo Hansson, head of Estonia’s monetary authority, lamented “misleading reports” on Estcoin from government agencies. Neither the government nor the central bank are planning to introduce a crypto-currency, he said.

Kaspar Korjus, the author of the Estcoin plan, said in a December statement that his proposals don’t include an alternative currency to the euro, which Estonia adopted in 2011. Issuing crypto tokens would add incentives to e-residents to create companies in Estonia, he said.

“As concerns new financial instruments, we have to be very careful on this,” Ratas said. “The initiators will have to describe what they have in mind.”

©2018 Bloomberg L.P.