European digital hub Estonia, it was announced on Friday, is scaling back its plans to issue a domestic cryptocurrency after criticism from the head of the European Central Bank (ECB), Mario Draghi.

Estonia is among the most crypto-friendly states in Europe and is trying to market itself as a hub for crypto start-ups and ICOs. Its e-residency programme means that people anywhere in the world can register themselves as digital citizens of Estonia and access certain benefits, such as being able to register a business in the country. Its crypto-friendly legislation makes it easy to establish a business there, which deals in cryptocurrencies.

In line with its high tech image, Kaspar Korjus, director of the Estonian e-residency programme announced plans for ‘Estcoin’, a government-issued digital currency, in August last year. It was proposed that it would be pegged to the euro and become the country’s national virtual currency as well as the official currency of the country’s e-residency programme.

Mario Draghi however has been critical of the project from the outset. In September he said:

“no [European Union] member state can introduce its own currency; the currency of the eurozone is the euro.”

Estonia adopted the euro as its national currency in 2011. Under plans for the ‘Estcoin’ scale back, the digital currency will now only be given to e-residents. Siim Sikkut, an official speaking about the country’s IT strategy, said:

“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.”

Korjus echoed this, stating, ‘Estcoin’ “would definitely not be a national ‘cryptocurrency’”.

Estonia is one of the most digitally progressive states in the world and is already the birth place of international payment solutions firm ‘Transferwise’; it is little surprise that investigations into the feasibility of launching a domestic digital currency are happening here.

Domestic cryptocurrencies have attracted a great deal of attention in recent months. Sweden and Norway have both recently been in the news regarding investigations into issuing their own central bank-backed digital currencies. But it should be borne in mind that equating these with traditional cryptocurrencies like bitcoin is misleading; they will be totally different from bitcoin, as they will lack decentralisation, transaction finality and most likely they will be inflationary. However, this does not mean they have no place in the economy. If ‘Estcoin’ is to succeed it should not be viewed as a replacement for the euro or as a competing cryptocurrency with bitcoin, but rather as a hybrid class of asset, which could perhaps work as a bridge between the traditional fiat finance system and traditional cryptocurrencies.

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