Digital euro debate rolls on as finance ministers mull stablecoin rules
Unstablecoin
As Eurozone finance ministers crack on with work to launch a digital version of the euro, the man charged with shepherding it through the European parliament calls its very existence into question.
The stablecoin initiative is “uncharted territory. You have to be cautious in uncharted territory”, centre-right MEP Fernando Navarrete tells Paola Tamma.
Context: Long in the making, the digital euro — a would-be digital currency pegged to the euro and backed by the European Central Bank — has been pitched as an alternative means of payment in a world dominated by US payment merchants Visa and Mastercard.
EU finance ministers gather in Copenhagen today and tomorrow for discussions on various issues including the rules underpinning the stablecoin, but the clash of views on the project appears stark.
Some would like to speed things up to counter the rise of US dollar-backed stablecoins, spurred by US President Donald Trump’s Genius Act. That’s becoming “a big issue for ministers”, according to an Eurozone official.
Others, like Navarrete, who was previously chief of staff to the governor of Spain’s central bank, think the project should be scrapped if the market can come up with an alternative.
At the same time, some warn that leaving it to the private sector to create a euro-pegged stablecoin could potentially undermine financial stability.
“If there is no digital euro, it will hurt the euro,” said Rebecca Christie of Bruegel, a Brussels-based think-tank.
Denmark, which holds the rotating presidency of the council, is hoping to get EU countries to agree by year’s end, before starting negotiations with the parliament.
One of the outstanding issues is who and how to set holding limits — that is, a ceiling on how much digital currency Europeans can hold at any one point.
Too low, and few would go to the trouble of setting up a digital wallet. Too high, and banks — to which digital wallets would be linked and automatically topped up by drawing on bank deposits — warn of risks to financial stability if people draw on their deposits en masse at times of crisis, causing a digital bank run.
The ECB floated a €3,000 limit — but both governments and the parliament want to have a say on it, with ministers set to reach their position today.
“The governance has to be very clear that it would be extremely difficult to increase those holding limits in times of stress,” Navarrete said. “Trying to strip that out from us is illegitimate. I mean, it’s wrong and it’s dangerous,” he added.