European Central Bank President Christine Lagarde wrote in an editorial that she thinks stablecoins could pose a risk to “financial stability and monetary sovereignty.”
The editorial noted the rise of digital payment methods, which have been especially expedited due to the pandemic. Lagarde said the coins could help with new innovations in payments but are susceptible to volatility.
“For instance, if the issuer cannot guarantee a fixed value or if they are perceived as being incapable of absorbing losses, a run could occur,” she said in the editorial. “Additionally, using stablecoins as a store of value could trigger a large shift of bank deposits to stablecoins, which may have an impact on banks’ operations and the transmission of monetary policy.”
She went on to say stablecoins, especially those backed by Big Tech might pose risks to competition and technological autonomy in Europe as they “would attempt to leverage their competitive advantage and control of large platforms.”
“Their dominant positions may harm competition and consumer choice, and raise concerns over data privacy and the misuse of personal information,” she wrote.
Lagarde said in the editorial that the digital euro remains a possibility for the future, with the prospect being unique through providing people unrestricted access to a risk-free, streamlined way to pay. A digital euro would boost the access customers have to central bank money, which is currently only offered in cash.
She described the idea as a complement product to cash and said using a digital euro could help to bolster finances as cash declines or to pre-empt the adoption of foreign digital currencies in the euro area.
In separate news, Jeremy Allaire, CEO of Circle Internet Financial, spoke with PYMNTS about the potential of stablecoins in the next few years. He said there could be “billions of people” using the coins backed by major currencies, and there probably wouldn’t be many of them — likely only two or three.
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