Bundesbank Chief Advocates for Euro-Pegged Stablecoins and CBDCs
The President of the German central bank has expressed support for the integration of euro-pegged stablecoins and Central Bank Digital Currencies (CBDCs) as vital strategies to fortify the EU’s financial autonomy.
Euro-Pegged Stablecoins: A Strategic Move
Joachim Nagel, the President of the Deutsche Bundesbank, recently endorsed the adoption of euro-pegged stablecoins and CBDCs as key instruments to curtail the European Union’s dependence on the US dollar. During a speech at the New Year’s Reception hosted by the American Chamber of Commerce in Frankfurt, Nagel emphasized the impact of geopolitical tensions, which have hindered the EU’s economic growth and competitiveness in recent years.
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Nagel underscored the necessity for Europe to implement bold actions to invigorate its economic landscape. He urged for enhancements in the international stature of the euro and stressed the importance of achieving greater independence in the realm of payment systems and solutions.
Progress Towards a Digital Euro
Highlighting the ongoing efforts with CBDCs, Nagel noted that the Eurosystem is diligently working on introducing the digital euro, which will mark the first retail central bank digital currency spanning across Europe. This initiative aims to establish a retail digital payment solution that is entirely rooted in European infrastructures.
Furthermore, Nagel acknowledged the potential of stablecoins, particularly euro-denominated ones, to streamline cross-border payments for both individuals and businesses. He elaborated on this at a Euro50 Group meeting, illustrating how stablecoins could facilitate programmable transactions, thereby reducing transaction costs and timescales.
Implications for European Sovereignty
Nagel warned of potential risks if stablecoins, especially those pegged to foreign currencies, become widely accepted as payment and value storage means within the eurozone. The proliferation of USD-denominated stablecoins could lead to a scenario akin to dollarization, potentially undermining domestic monetary policies and European sovereignty.
He pointed out that the US has been actively fostering the crypto sector through regulatory measures like the GENIUS Act, signed by former President Donald Trump, which provided a legal framework for stablecoin issuers. This regulatory support has catalyzed substantial growth in the sector, with market capitalization soaring by nearly 50% in recent years.
Exploring Technological Solutions
While Nagel believes the risk of significant dollarization via stablecoins is minimal, he stressed the importance of leveraging new technological advancements to mitigate potential threats. He advocated for the adoption of a wholesale CBDC to enable institutional market participants to execute programmable transactions using central bank money.
By embracing digital innovations like tokenized deposits and euro-denominated stablecoins, Europe can maintain its monetary policy effectiveness and bolster its sovereignty in an unpredictable geopolitical climate.
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