Christine Lagarde has identified privately-issued stablecoins as representing a greater risk to financial stability and the monetary sovereignty of the EU than cryptocurrencies like bitcoin. She has commented on the topic a few times before and proposes a digital Euro in the form of a CBDC.
The European Central Bank (ECB) President says that volatile prices and lack of liquidity make bitcoin and other digital assets poorly suited for use as money. Lagarde is also keen to push on with the ECB’s digital euro. She claims that such a central bank-issued digital currency (CBDC) would help protect the EU’s monetary sovereignty.
Particular risks with privately-issued stablecoins
Christine Lagarde doesn’t think that bitcoin and other fixed-supply digital assets represent a particular threat to the financial status quo in Europe. Writing for the magazine L’ENA hors les murs, the ECB President stated that cryptocurrencies like bitcoin do not “fulfill all the functions of money.”
She identified their lack of price stability, as well as the “flawed concept of there being no identifiable issuer” as obstacles hindering the adoption of such digital currencies.
As we enter the digital age, the nature of money is changing, I explain in @AnciensENA. The ECB must ensure that payments in the euro area remain innovative and highly trusted by all Europeans https://t.co/fY7w5EJBaH pic.twitter.com/M5k7y3OCxU
— Christine Lagarde (@Lagarde) November 30, 2020
However, privately-issued stablecoins, particularly those backed by “big techs,” present “serious risks.” While not explicitly mentioned, it’s likely Lagarde is referring specifically to Facebook’s Libra, that has recently renamed itself to "Diem". The stablecoin project attracted immense scrutiny when the social network company announced it last year.
Lagarde stated that digital currencies with pegged prices threaten the “competitiveness and technological autonomy” of the European Union. She also added that efforts from big tech to create digital currencies raises the important issue of data privacy.
Would a digital Euro help mitigate these threats?
Lagarde also reiterated the importance of current ECB efforts to create a digital euro. She claimed that central bank-issued currency is attractive because it represents a “risk-free and trusted means of payment.” However, in its current form, the euro does not meet the evolving needs of individuals in an increasingly digital world. The ECB President added that a digital euro would help unify the European economy, as well as preserve its monetary sovereignty in the face of international efforts to create CBDCs.
There are numerous efforts by central banks to launch digital currencies around the world. Of those from major economies, China’s digital yuan appears to be the furthest along having undergone various stages of testing in recent months.
