One of his proposals was to “channel efforts into supporting the international role of the euro,” which would include developing European payment systems.
And for Nagel, this could mean introducing euro-denominated stablecoins, “as they can be used for cross-border payments by individuals and firms at low cost.”
“A hypothetical replacement of a domestic currency with [USD-pegged] stablecoins would be equivalent to a dollarisation of the corresponding economy,” he said. “In this scenario, the effectiveness of domestic monetary policy could be severely impaired, not to mention that European sovereignty could be weakened.”
The Eurosystem is also evaluating the possibility of using distributed ledgers for non-central bank money, including “tokenised deposits and euro-denominated stablecoins.”
According to Nagel, both wholesale CBDCs and euro-pegged stablecoins would give the Eurosystem the ability to “utilise cutting-edge digital technologies to maintain our monetary policy effectiveness in an uncertain geopolitical future.”
These remarks were echoed by Nagel’s speech in Germany on Monday, with the ECB official reiterating that the Eurosystem is working on the digital euro, which will be “the first pan-European retail digital payment solution, based solely on European infrastructures.”
Despite the apparent drive towards introducing stablecoins in Europe and elsewhere, some economic commentators warn that they may come with downsides.
This is the view of economic author and journalist Paul Blustein, who told Decrypt that not only would stablecoins violate the singleness of money principle, but that “there’s a big risk to developing countries of dollarization that would undermine the ability of central banks to maintain control over their nations’ money supply.”
“I don’t think the dollarization threat is nearly as big a deal for Europe as it is for developing countries,” he said. “Europeans generally have confidence in the euro and the ECB.”
A senior associate at the Center for Strategic and International Studies, Blustein suggested that while Nagel is not really panicking over the threat of dollarization in Europe, the Bundesbank president is aware and right that it “poses a big threat elsewhere in the world.”
In view of this danger, Blustein argues that a better approach for Europe is to push forward as rapidly as possible on tokenized deposits, which “don’t have the drawbacks” commonly associated with stablecoins.
“If tokenized deposits are successful in Europe, that might expose the weaknesses of stablecoins,” he said. “Trying to beat the U.S. at the stablecoin game may be a losing proposition; trying to beat stablecoins with a superior instrument strikes me as more promising.”
Matt Osborne, Policy Director, UK & Europe at Ripple, argued that the future of the monetary system is a “mixed money ecosystem,” telling Decrypt that the EU “needs global stalecoins.”
“Concerns around risks to monetary sovereignty are valid but should not be over-stated,” Osborne told Decrypt, noting that the euro is stable and trusted, and there is “little reason” for dollar adoption in EU domestic payments. He added that the dollar is “already widely used for cross-border payments, trade invoicing and cross-border lending,” with dollar-backed stablecoins making these existing use cases “more efficient.”
“Far from being a threat, stablecoins are complementary to the current monetary system,” Osborne added.
As for the drawbacks of stablecoins, Blustein said that he sees some big downsides, even if such tokens may provide cheap and fast cross-border payments.
He said, “The main one is the likelihood that stablecoins will facilitate illicit transactions.”
While acknowledging that blockchain transparency can aid law enforcement in clamping down on bad actors, Blustein also contended that it provides a range of means for criminals to “abuse the system and evade AML/KYC requirements, for example with self-hosted wallets and mixers.”
