After a volatile week for stablecoins and cryptocurrencies, this week begins with a fresh call from European Union regulators to look into this space and to boost alternatives to private digital money, namely, a digital euro.
On Monday (May 16), two top officials of central banks have criticized crypto assets and the disruption these could bring to the international financial system if they are not regulated. First, Bank of France Governor Francois Villeroy de Galhau told a conference in Paris that more regulation is needed, and crypto assets should be interoperable in a consistent and appropriate manner across jurisdictions. As regards stablecoins, he said they were somewhat misnamed.
The second official to discuss this issue was Fabio Panetta, member of the executive board of the European Central Bank (ECB) and the person in charge of developing a central bank digital currency (CBDC) for Europe. Panetta has previously warned of the risks associated with crypto assets and during his speech Monday morning in Dublin he also warned that stablecoins are vulnerable to runs.
“Recent developments in the market for crypto assets illustrate that it is an illusion to believe that private instruments can act as money when they cannot be converted at par into public money at all times,” he said.
“There is no guarantee that they [stablecoins] can be redeemed at par at any time — just last week the world’s biggest stablecoin temporarily lost its peg to the dollar.”
But Panetta’s speech was not so much about criticizing crypto assets but about promoting the benefits of a digital euro and the complementarity of public and private money to guarantee stability, competition and innovation.
For Panetta, the role of public money in Europe, whether digital or not, is of utmost importance to keep Europe’s strategic autonomy and monetary sovereignty. A few non-European global players have “come to dominate certain segments of the payments markets, such as card payments and e-commerce. This trend could be accentuated by the expansion of big techs,” said Panetta.
For the top official, the increasing popularity of non-cash payments and crypto reveals a growing demand for immediacy and digitization that if it is not filled by central banks, others will. The ECB has already been working on a digital euro for a few years and the latest feedback from a public survey suggests that there is appetite for digital payments, but it is unclear if this means a digital euro or any other form of private money. Panetta admitted that a digital euro “can only be successful if potential users find that it adds value to current payment options.”
Nonetheless, the ECB is working on a digital euro for the dual purpose of facilitating payments for merchants and citizens, but also to protect the EU’s strategic autonomy.
The ECB has also started a campaign to step up their engagement with stakeholders, from banks to payment companies and society at large to see their appetite for a digital euro and what features are most important for each group. The central bank has also partnered with the European Commission, the EU Parliament and finance ministers to take all the legal steps necessary to give a CBDC legal tender status if required.
Panetta concluded his speech with a glimpse of the roadmap of a possible digital euro. The ECB could decide to start to develop and test the technical solutions and business arrangements to provide a digital euro at the end of 2023. This phase could take three years.