Christine Lagarde is back to talking about stablecoins and the digital euro, discussing their values and risks.
She did so yesterday, in an article published by Ena magazine, the French public administration school.
According to Christine Lagarde, stablecoins can bring serious risks to national sovereignty.
Christine Lagarde: the reason stablecoins are a threat
The President of the ECB explains that the use of stablecoins:
“If widely adopted, they could threaten financial stability and monetary sovereignty. 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”.
“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”.
Christine Lagarde also says she is concerned about the risks associated with stablecoins related to “bigtech” in terms of competition, competitiveness and technological autonomy.
“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”.
Although never mentioned, it is easy to discern a reference to Libra, which will be launched in January 2021.
The digital euro to contrast stablecoins
This is also why, according to the President of the ECB, there is a need for a digital euro. However, the digital euro must have very specific characteristics.
“The ECB wants to ensure the euro remains fit for the digital era. The foundations of money remain intact. People accept money only if it is highly trusted, maintains its value and respects privacy – an aspect that is becoming increasingly important in the digital age. These foundations have been and will continue to be found in central bank money, irrespective of the form it takes in the future”.
However, the digital euro:
“It could be important in a range of future scenarios, from a decline in the use of cash to pre-empting the uptake of foreign digital currencies in the euro area. Issuing a digital euro might become necessary to ensure both continued access to central bank money and monetary sovereignty”.
And she adds:
“A properly designed digital euro would create synergies with the payments industry and enable the private sector to build new businesses based on digital euro-related services.
A digital euro would also be an emblem of the ongoing process of European integration and ultimately help to unify Europe’s digital economies”.
In conclusion, Christine Lagarde leaves the door open to the possibility of Europe complementing the paper-based euro with a digital euro.
A digital euro would thus have a dual purpose:
- To combat the use of private stablecoins;
- To expand the range of payment services.
All these issues are part of the most important one: maintaining monetary sovereignty, which is what national institutions seem to fear.