FRANKFURT, Nov. 5 (Reuters) – The European Central Bank must issue a digital euro as ceding the space entirely to private sector initiatives like stablecoins could endanger financial stability and weaken the role of the central bank, said Fabio Panetta, member of the Executive Board of the ECB.
The ECB has been working on the design of a digital currency, a direct claim on the central bank much like in the case of cash, but the project could still take around five years before a real currency can be launched.
“Just as the postage stamp has lost much of its usefulness with the advent of the internet and email, cash may also lose its relevance in an increasingly digital economy,” said Panetta. in a speech Friday.
“If this scenario were to materialize, it would weaken the effectiveness of central bank money as a monetary anchor.”
The central bank’s digital currency, while passing through commercial banks, would be a liability of the central bank, providing people with an additional level of security that is not affected by the health of individual lenders or service providers. payment.
But Panetta rejected the argument that private sector stablecoins – a form of cryptocurrency typically tied to a traditional currency so that it retains its value – would render the central bank’s digital currency redundant, as private initiatives carry inherent risks which are often magnified in times of crisis.
“History shows that financial stability and public confidence in money requires widely used public money alongside private money,” he said.
For a central bank digital currency to work, it needs to be widely used so that people are always aware that it is an option on the table.
“To this end, a digital euro should be designed in such a way as to make it attractive enough to be widely used as a means of payment, but at the same time prevent it from becoming such a popular store of value that it clutters private money. and increases the risk of bank runs, ”he added.
Report by Balazs Koranyi; Editing by Alison Williams
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