Estonia has stepped away from plans to issue the world’s first ‘national cryptocurrency following pressure from the European Union and domestic banking authorities.
In August 2017, the government of Estonia announced it would consider issuing a national cryptocurrency called ‘Estcoin’ in the world’s first-ever government-backed ICO. Since 2011, Estonia has been a member of the Eurozone, which makes it subject to European Central Bank (ECB) rules on monetary policy.
ECB president Mario Draghi repeatedly warned that the Estcoin concept was incompatible with the rules of the Eurozone, even stating outright at a September 2017 ECB press conference, “No member state can introduce its own currency; the currency of the eurozone is the euro.”
Estonia on its part has consistently denied that the planned cryptocurrency would serve as a competitor or a substitute for the euro.
ECB President Mario Draghi. Source: Wikimedia
The Estcoin Plan
Estcoin was introduced as a revolutionary cryptocurrency idea that would effectively allow people all over the world to invest in Estonia directly. Already noted for being one of the most blockchain-friendly countries in the world, Estonia planned to open its digital borders to direct investment from so-called ‘e-residents’ around the world to boost economic activity.
Estonia e-Residency Program. Source: https://e-resident.gov.ee/
According to Kaspar Korjus, director of the country’s e-residency programme, Estcoin would be a revolutionary way of stimulating economic growth by providing the government and private sector with a fund to carry out strategic investment which would generate wealth and economic opportunities for physical Estonian residents as well as profits for e-residents.
The plan was also for the value of Estcoin to be pegged to the euro, with the whole country given access to the tokens as a means of carrying out certain transactions. The Estcoin project received support from many notable cryptocurrency figures including Ethereum co-founder Vitalik Buterin, who stated that the Estcoin ecosystem would create a substantial incentive alignment between e-residents and the fund.
Opposition, Resistance, and Conclusion
The project immediately ran into opposition from the ECB and local banking authorities who warned that by pegging its value to the euro and being offered to Estonian residents in a general coin offer, Estcoin was effectively a currency operating in parallel to the euro in contravention of Eurozone rules.
Central Bank governor Ardo Hansson added his voice to Mario Draghi’s condemnation, decrying what he described as “misleading reports” from the Estonian government on the Estcoin program. He stated, “We agreed in discussions with politicians that Estcoin will proceed as a means for transactions inside the e-resident community. Other options aren’t on the table. We’re not building a new currency.”
Following the criticism, Estonia has announced that it no longer plans to peg tokens to euro or offer them to all citizens in a state-backed ICO. Instead, according to Siim Sikkut, Chief Information Officer of the Estonian government, Estcoin will be used solely as an incentive to the e-residents, giving them the ability to earn returns on their Estonian investments.