- ECB board member Fabio Panetta advised against giving stablecoin issuers access to central bank reserves, warning about possible far-reaching implications.
- Meanwhile, the ECB is revisiting the idea of allowing financial institutions to use a wholesale central bank digital currency (CBDC) for distributed ledger technology (DLT) payments.
In a stringent discourse on cryptocurrencies, Fabio Panetta, a member of the European Central Bank (ECB) board, expressed caution about enabling stablecoin issuers to access central bank reserves. The primary concern is the reduction of investment risk, which could turn stablecoins into a close substitute for central bank money.
According to Panetta, the integration of a stablecoin with the expansive customer base of a major tech firm could eventually displace sovereign money, thereby having sweeping ramifications. Contrarily, the U.S. Treasury has acknowledged the potential of central bank deposits to provide a solid asset backing. The current U.S. draft stablecoin Bill also permits this provision, hinting that federal agencies may no longer have the power to oppose it.
Panetta referred to USDC, a stablecoin issued by Circle, and its previous endeavors to access central bank money by forming a custom money market fund with BlackRock. Although this approach was barred by the Federal Reserve, Circle continues to advocate for access to central bank accounts. Earlier this year, USDC’s peg was lost when Silicon Valley Bank declared bankruptcy. Circle, holding $3.3 billion in reserves at the bank, was revealed as the largest depositor covered by the government bailout.
While Circle has recently applied for a license in France, the ECB’s stance indicates a shift in the European Union’s approach to digital currencies. Panetta also brought up the possibility of enabling financial institutions to use a wholesale central bank digital currency (CBDC) for distributed ledger technology (DLT) payments. Contrary to earlier ECB statements suggesting exploration of a trigger payment solution linking DLT networks to existing payment systems, the option of DLT-based central bank money is now under consideration, with the market playing a role in this exploration.
Simultaneously, the Bank of Italy is engaged in a wholesale CBDC trial after extensive testing by the Banque de France. France, Germany, and Italy are the key jurisdictions in the EU responsible for its payment infrastructure, with the latter two favoring trigger payments over a wholesale CBDC. This current direction of the ECB might reshape the future interaction between stablecoins and central bank reserves.
