A small toy figure is seen on representations of the virtual currency on a displayed European Union flag and the Facebook Libra logo in this illustration picture.

Germany, France, Italy, Spain and the Netherlands on Friday backed the European Commission’s goal to draw up regulation for asset-backed cryptocurrencies such as stablecoins, according to a draft joint statement.

Stablecoins should not be allowed to operate in the European Union until legal, regulatory and oversight challenges have been addressed, the five countries said.

Stablecoins, a type of cryptocurrency often backed by traditional assets, pushed their way onto policymakers’ agendas last year when Facebook unveiled its plans for the Libra token.

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Central banks and financial regulators feared Libra - originally planned to be backed by a wide mixture of currencies and government debt - could destabilise monetary policy, facilitate money laundering and erode user privacy. Some threatened to block it, and the project has since been delayed and reshaped.

The EU’s regulatory framework for stablecoins should preserve the bloc’s monetary sovereignty and address risks to monetary policy, as well as protecting consumers, the statement said.

All stablecoins should be pledged at a ratio of 1:1 with fiat currency, with reserve assets denominated in the euro or other currencies of EU members states, and deposited in an EU-approved institution, it said.

All entities operating as part of a stablecoin scheme should be registered in the EU, it added. Such a move would likely impact the Libra Association, the Geneva-based body that plans to issue and govern Libra.

Reuters