Fabio Panetta cautions against stablecoins having access to central bank reserves and becoming comparable to central bank money, citing potential risks.
Key Points
- Fabio Panetta, warns about the risks of stablecoins accessing central bank reserves and potentially becoming equivalent to central bank money.
- The US Treasury acknowledges the potential of central bank deposits as backing for stablecoins, as reflected in the draft stablecoin Bill.
- The Bank of Italy is conducting a large-scale trial of its wholesale central bank digital currency (CBDC), following the lead of the Banque de France.
Fabio Panetta, a member of the European Central Bank (ECB) board, recently delivered a stern warning about the use of cryptocurrencies. He expressed his reservations about allowing stablecoin issuers to have access to central bank reserves, citing concerns about investment risk reduction that could potentially transform stablecoins into a near-equivalent to central bank money.
Fabio Panetta , a board member of the European Central Bank ( #ECB ), said that #cryptocurrencies have become speculative assets and a means of circumventing capital controls.#bitcoin pic.twitter.com/FAqHPZBjTO
— Meta Era (@MetaEra_Media) June 25, 2023
The Panetta Warning
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.
As per Panetta,
” The integration of a stablecoin with any tech giant’s vast customer base could lead to the displacement of sovereign money. The impact of such an event could be far-reaching and consequential“
In contrast, the US Treasury has expressed interest in the potential of central bank deposits to provide a solid asset backing. The new stablecoin Bill in the U.S. also allows for this provision, hinting that federal agencies may no longer have the power to oppose it. The stage is set for an interesting showdown between stablecoins and sovereign money.
Around the Stablecoin Market
One of the biggest players in the stablecoin market is Circle, which issues the USDC stablecoin. Circle has been trying to gain access to central bank money in the past, even forming a custom money market fund with BlackRock. However, their attempts were barred by the Federal Reserve. Despite this setback, Circle continues to push for access to central bank accounts.
Earlier this year, USDC’s peg was lost when Silicon Valley Bank declared bankruptcy. Circle, which held $3.3 billion in reserves at the bank, was revealed as the largest depositor covered by the government bailout. This turn of events has raised questions about stablecoins and their potential impact on the economy. The world watches with bated breath as the stablecoin saga unfolds..
Furthermore, as we speak, the Bank of Italy is diving into a large-scale trial of their wholesale CBDC, following in the footsteps of the Banque de France and their extensive testing. In the EU, France, Germany, and Italy play a vital role in the payment infrastructure, with Italy and Germany showing a clear preference for trigger payments over wholesale CBDCs. This shift in direction from the ECB is bound to have a significant impact on the relationship between central bank reserves and stablecoins in the future.
