European Central Bank Official Warns of Risks from Private Stablecoins, Advocates for CBDCs

European Central Bank Official Warns of Risks from Private Stablecoins, Advocates for CBDCs

Crypto News – Fabio Panetta, an executive board member of the European Central Bank (ECB), has raised concerns about the risks associated with private stablecoins while advocating for the development of Central Bank Digital Currencies (CBDCs).

Panetta expressed his worries about stablecoins issued by private companies like PayPal, emphasizing that they pose a threat to the financial stability of the economic sector and could stifle healthy competition if they were to dominate the market.

During a meeting of the European Parliament’s Committee on Economic and Monetary Affairs, Panetta remarked, “Private payment service providers, including PayPal, lack the incentive to limit the adoption of their stablecoins or the range of services they offer. On the contrary, their goal is to expand their customer base and gain market share.”

PayPal had launched its own stablecoin, PayPal USD, in August, with CEO Dan Schulman expressing his expectation that it would become an integral part of the broader payments infrastructure.

Panetta further noted that companies like PayPal can generate substantial revenue by investing their reserve assets in financial instruments offering positive interest rates. However, they may not be interested in making their payment solutions compatible with existing systems.

He cautioned against the potential monopolistic position that large tech companies or payment providers could attain, which might hinder competition and innovation, similar to what has been observed in other digital sectors.

Panetta emphasized that a European central bank digital currency (CBDC), often referred to as the digital euro, would offer a different perspective. He stated, “[The digital euro] would carefully consider adjustments in the financial sector while providing a platform for payment service providers to innovate across the euro area.”

Panetta also addressed concerns related to the digital euro, highlighting that the European Commission aims to establish it as legal tender, obliging businesses and individuals to accept it as a valid payment method. The proposal includes fair pricing policies and grants the ECB the authority to ensure financial system stability, even through measures such as imposing limits on holdings, a point of contention in the crypto community.

Panetta argued, “Tools like holding limits are designed to proactively prevent adverse effects on monetary policy, financial stability, and credit allocation to the real economy. Users wishing to exceed the set limit can do so by linking their digital euro wallet to their bank account.”

Addressing privacy concerns, Panetta assured that the Eurosystem would not have access to personal details of digital euro users or connect payment information to individuals. Intermediaries would only access user information required for onboarding and compliance with existing regulations.

Earlier this year, Panetta acknowledged that the digital euro aims to offer a level of privacy similar to physical cash, though not identical.

The investigation phase of the digital euro project is scheduled to conclude in October, following which the ECB’s Governing Council will decide on the next steps, focusing on refining and testing the technical infrastructure and business arrangements for the digital euro. Any decision to issue a digital euro would only be made after the relevant legislative act has been adopted.