European Central Bank (ECB) member Fabio Panetta discussed the pros and cons of the digital currency known as stablecoins in a Wednesday (Nov. 4) speech at Il Salone dei Pagamenti (Payments Fair) 2020.
Panetta, a member of the ECB’s executive board, said in his speech that the payments industry is in the midst of a quickly-developing digital transformation. He pointed to a recent survey conducted by the European System of Central Banks that indicated that one-third of the more than 200 new payment solutions reported were startups. The annual conference runs Nov. 4-6 and is being held virtually this year.
“We can now pay with cards that are stored in our mobile wallets, ready for a transaction to be initiated at the touch of a button,” he said, adding that new solutions are integrating application programming interfaces (APIs), giving people more choice than ever before.
He credits FinTechs for sparking the recent innovations and disrupting the business model to advance a data-driven approach over one based on fees. The shift enables free services in exchange for users’ personal information.
“The global technology firms — the so-called big techs — are using this model to leverage their large customer base and expand in global markets,” he said. “Thanks to their global footprint, they are uniquely positioned to offer services in the area of global cross-border transactions, where current solutions are low quality and expensive.”
He added, “This is the backdrop against which stablecoins have emerged.”
Stablecoins are anchored against one or more currencies and are more resistant to price fluctuations. The digital currency was at the center of discussions last year when Facebook announced its intention to launch its own stablecoin called Libra.
Further, the integrated construct of global stablecoins can offer a user experience that is streamlined without having to depend upon “existing payment schemes and clearing and settlement arrangements.”
For example, Panetta said Libra includes a new settlement asset, payment rail and end-user tools.
On the plus side, global stablecoins could advance the development of payments and make cross-border payments and remittances more affordable and efficient. But that comes with possible risks “to our social and economic life.”
The European Commission (EC) said in June that the planned updates to its cryptocurrency rules could make it harder for stablecoins like Libra.
In September, the finance ministers of Germany, France, Italy, Spain and the Netherlands asked the EC to enact strict regulations for digital currency like stablecoins. The Libra Association is awaiting an answer from the Swiss Financial Market Supervisory Authority (FINMA) for a Swiss payment system license.