Ministers set to defy ECB over e-cash

Date: 25/11/1999

By Peter Chapman

EU FINANCE ministers are set to ignore European Central Bank opposition to proposals to create an EU-wide legal framework for electronic money.

Diplomats say ministers will endorse the proposals at their meeting next Monday (29 November), despite ECB President Wim Duisenberg's warnings that this could lead to a watering down of euro-zone monetary policy. "It will be approved without discussion," said one source.

The proposed framework for electronic cash at the centre of the controversy would regulate money 'stored' on computer networks and the array of new 'pre-paid' cards or 'electronic purses' which use new smart-card technology to allow consumers to make direct 'cash' payments without the need to carry notes and coins. These include the UK's Mondex and Belgium's successful 'Proton' system.

The ECB controversially forced the proposals off the agenda of an EU finance ministers' meeting earlier this month, calling for further debate before an agreement was finalised just as member states were on the verge of approving a compromise proposal drawn up by the Finnish presidency.

The bank's last-minute intervention sparked particular anger in Union member states outside the euro zone, which questioned the ECB's right to call for changes to the legislation.

"The ECB tried to influence the meeting," said one diplomat. "Some people thought it was a question of power play. Their behaviour was not in line with the treaty."

ECB officials refused to comment on next week's likely decision by finance ministers to press ahead with the proposals. However, sources in Frankfurt say the bank still has doubts over the wisdom of the proposed approach.

Its main concerns centre on the plan to offer many of the 'non-bank' organisations which provide electronic cash services wide-ranging exemptions from EU banking directives.

Union diplomats point out that such organisations would still have to meet the requirement that they must have initial capital of €1 million, twice the amount called for in the European Commission's original proposals. They would also have to ensure investments were limited to highly liquid low-risk assets and apply minimum standards of 'fit and proper management'.

But the ECB has warned that these organisations would still be beyond its control and would not be obliged to comply with its rules, including the requirement to lodge a proportion of their assets with the bank. Officials fear that this could undermine euro-zone monetary policy - and the ECB's efforts to keep a lid on inflation.

Assuming EU finance ministers approve the proposals at next week's meeting, as expected, they will then be passed to the European Parliament for scrutiny later this year.

EU finance ministers are set to ignore European Central Bank opposition to proposals to create an EU-wide legal framework for electronic money.