Between 2016 and 2022, the use of cash in the eurozone fell significantly, from 79% to 59% of all retail payments. Against the backdrop of such rapid digitization, the European Central Bank (ECB) has been investigating the prospect of issuing a CBDC.
While the ECB concludes its digital euro investigation , private issuers are forging ahead with solutions like stablecoins. ECB board member Fabio Panetta warns that without a CBDC, private stablecoins could shift power away from the central bank.
In a speech on Monday, September 4, 2023, Panetta told the European Parliament’s Committee on Economic and Monetary Affairs that the ECB will report the findings of its year-long CBDC investigation next month.
Upon conclusion of the investigation phase, the ECB’s Governing Council will decide whether to move ahead with the project, he said.
Should it do so, the European Parliament will be tasked with preparing legislation for the bloc to adopt a CBDC. Before it is passed into law, any legislation will first be voted on.
So far, statements made by high-ranking EU officials, including Panetta and the ECB President Christine Lagarde, indicate that the central bank favors moving ahead with plans for a digital euro.
The ECB favors a CBDC for several reasons. For example, as Panetta stressed on Monday, without one, privately issued stablecoins could overshadow fiat currency.
While the ECB isn’t against private stablecoins per se, Panetta insisted that the EU “should not leave it to the private sector alone.”
Citing PayPal’s recently launched PYUSD Stablecoin, he observed that private businesses have no incentive to ensure equal access to their technology. Furthermore, he cautioned that they could hinder innovation and competition if they achieve a monopolistic position.
To prevent such a scenario, Panetta said a CBDC would help “maintain the equilibrium between private money […] and central bank money.”
Of course, there is a counterargument to Panetta’s view that stablecoins could grant too much power to private businesses.
Decentralized stablecoins like MakerDAO’s Dai, offer an alternative to centrally administered models, both private ones like PYUSD and public ones such as the the ECB’s proposed digital euro.
The disintermediation of central banks has long been a pillar of the kind of crypto-libertarianism that helped Bitcoin and other digital currencies rise to prominence in the first place.
For some die-hard cryptocurrency advocates, CBDCs represent the bastardization of a technology that was initially designed to supersede central banks, not reinforce their position.
In the end, decentralized stablecoins still track the price of dollars, euros and other fiat currencies. Accordingly, central banks retain control over monetary policy, such as interest rate setting.
Still, CBDC critics argue it grants more power to government bankers, dismissing it for authoritarian potential and concerns about financial surveillance and control.
The ECB uses the term “cash-like privacy,” but has stopped short of guaranteeing full anonymity of payments.
Panetta clarified that the digital euro proposal would protect payment sender and receiver details from the Eurosystem while requiring wallet operators to gather identification data to comply with anti-money laundering rules.
Privacy is certainly a concern for many consumers, but choice and availability could be more important in defining payment patterns in the coming years.
If, or when a central bank-issued digital euro hits the market, it will benefit from legal tender status, giving it a key advantage over stablecoins, whether privately operated or decentralized.
Regardless of their thoughts on the ECB, European sovereignty or privacy, eurozone consumers may end up embracing CBDCs out of convenience more than anything else.