Crypto investors know well by now that institutions like the European Central Bank [ECB] are suspicious of stablecoins and often warn of their risks.
On 10 December, Fabio Panetta, an executive board member of the ECB delivered a speech that rehashed these familiar talking points. However, Panetta also revealed some new and intriguing insights about what the digital euro might do to non-EU economies.
Digital Euro, the next stablecoin?
After reviewing the need for a CBDC, Panetta expressed concern that a digital euro that could be used by non-EU residents might batter weaker foreign currencies. He said,
“Second, the digital euro could spread in third countries to the extent that it would crowd out local currencies, leading to a digital “euro-isation”, which could hamper the transmission of monetary policy and lead to financial instability.”
Panetta added,
“The risks would be greater for emerging economies that have weak currencies and economic fundamentals, and close trade and financial ties[53] with the Single Market and which are integrated into global value chains.[54]”
As around 100 countries develop their own CBDCs or even test out multiple-CBDC platforms, central banks will have to think about how foreign residents might choose to use these digital currencies. Panetta further feared that the central banks in these countries might lose their autonomy because of the digital euro’s spread.
So ‘EU’ wants stability
During his speech, the exec also made it clear he wasn’t happy with the number of foreign entities in the European payments services sector. Calling it “colonization,” Panetta observed,
“Two U.S. intermediaries handle two-thirds of card payments, while another U.S. operator dominates online payments. Digital payments seem to be expensive for many users and are in fact mainly used by people with medium to high incomes.”
This is where the EU has something in common with none other than El Salvador. The European Central Bank reportedly feels that a digital euro will help preserve its financial stability and reduce its dependence on U.S. intermediaries. Meanwhile, El Salvador has been using Bitcoin to reduce its own reliance on the U.S. dollar.
More than a cheesy celebration
If Panetta is right, quick action is a must. On 8 December, the Bank for International Settlements [BIS] announced the “successful” conclusion of a wholesale CBDC experiment between the Swiss and French central banks. For Project Jura, the two banks reportedly sent Euro and Swiss franc wholesale CBDCs using distributed ledger technology.
BIS noted,
“The experiment was conducted in a near-real setting, used real-value transactions and met current regulatory requirements.”
