Governing the state-money nexus in the age of FinTech

The prominence of digital assets and decentralized finance reshapes the roles of pivotal actors in the state-money nexus, primarily that of central banks. Beyond individual roles within this model, there appears to be a governance issue: the market is driving the spread of private solutions, while central banks are trying to “stick to their knitting”, i.e., with the hierarchical governance of monetary sovereignty. Although profusely discussed in literature, there is no universally accepted legal definition of monetary sovereignty in international law. The 1929 opinion of the Permanent Court of International Justice states that it is a “generally accepted principle that a state is entitled to regulate its own currency”. Since the 1990s, financial globalization has eroded the role of monetary sovereignty, to the point where it has been described as a “figure of speech” or a “myth” in literature (Zimmermann, 2013). And with FinTech, a new variable accelerates the erosion process, with repercussions to the relationship between the hierarchical model and the market model of monetary governance. Bitcoin-like digital tokens serve as a good example: in 2014, a YouTube video by self-proclaimed bitcoin gurus (e.g., R. Ver, J. Berwick, K. Atlas and T. Meyer) declared that “Bitcoin is sovereignty. Bitcoin is renaissance. Bitcoin is ours. Bitcoin is’ delivering a message of a serious threat to state legitimacy.” In the following decade, the bitcoin and bitcoin-like private digital tokens have been critically reviewed as a way to democratize money. In a starkly different tone, Dodd (2018), Walch (2019) and recently Aquilina et al. (2024) emphasize the false horizontalism of blockchain and decentralized infrastructures. Nevertheless, decentralized, bitcoin-like business models, or anything similar, call for the recalibration of the relationship between the community and the State and for bridging the divide between hierarchical and market models of money governance. If the ultimate objective is to establish a shared governance of money than one way to approach this would be to focus on the subsidiarity principle as a medium. Indeed, subsidiarity – an established principle of EU law outlined in Art. 5 of the Treaty on the EU – may help us conceptualize monetary plurality within the current institutional framework harnessing also FinTech innovations. After analyzing the broader and narrower (EU) meaning of subsidiarity, this paper will examine: first, how the compulsory and soft rules concerning payment services, digital platforms, and digital money tokens allocate the regulatory and enforcement powers of monetary production and, second, how much space is left for local and digital communities to pursue collective aims (e.g., sustainability or financial inclusion). With our analytical lens intersecting law and political economy, we scrutinize EU regulatory initiatives aimed at establishing an internal market for payments, such as the institutionalization of FinTech through successive iterations of the payment service directives or that of crypto assets with the recently adopted MiCAR, for example. In light of this, our paper aims to determine whether the EU is capping or improving monetary plurality.