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Stablecoins issued by private companies like PayPal not only threaten the financial stability of the economic sector, but could also impede healthy competition within the market were they to achieve a dominant and monopolistic position, according to European Central Bank executive board member Fabio Panetta.
“Private providers of payment services, including PayPal, have no incentive to limit the take-up of their stablecoins or the range of services they provide,” Panetta said during the European Parliament’s Committee on Economic and Monetary Affairs meeting on Monday. “Quite the opposite: their objective is to expand their customer base and gain market share.”
PayPal launched its own dollar-pegged stablecoin, PayPal USD, in August, with the firm’s CEO Dan Schulman saying at the time that he expected it to become "part of the overall payments infrastructure.”
According to Panetta, companies like PayPal are capable of generating sizable revenue by reinvesting the reserve assets in financial tools offering positive interest rates; however, they may be not interested in making their payment solutions compatible with those already existing today.
🧵 A digital euro would be a new form of central bank money, says Executive Board member Fabio Panetta. It is now up to legislators to ensure it would replicate key characteristics of cash in the digital sphere, particularly its privacyhttps://t.co/nQJzYylwpV
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— European Central Bank (@ecb) September 4, 2023
“While the market entry of big techs or other large payment providers may initially promote innovation, competition could be severely hampered if they attain a monopolistic position, as we have seen in other digital sectors,” he said.
Things would be completely different with the proposed European central bank digital currency (CBDC), also known as the digital euro, claimed Panetta.
“[The digital euro] would pay due attention to orderly adjustments in the financial sector while offering payment service providers a platform for innovations with pan-euro area reach,” he said.
Decrypt has reached out to PayPal for comments and will update this article should we hear back.
Digital euro to introduce limits on holdings
Panetta also stressed that the European Commission (EC), which has formally put forth a CBDC legislative proposal in June this year, aims to make the digital euro legal tender, thereby requiring businesses and individuals to accept it as a valid form of payment.
Additionally, the proposal includes the implementation of fair pricing policies and grants the ECB the authority to ensure stability within the financial systems by using measures such as imposing limits on holdings—something many in the crypto space have been critical of.
“Tools such as holding limits will, by design, pre-empt any undesirable consequences for monetary policy, financial stability and the allocation of credit to the real economy,” argued Panetta. “Users wishing to pay more than the set limit will be able to do so by linking their digital euro wallet to their bank account.
User privacy is another area of concern for those opposing the introduction of the digital euro. Panetta claimed that “the Eurosystem would be unable to see the personal details of digital euro users or connect any payment information to private individuals.”
“Intermediaries would only see the user information needed for onboarding and compliance with existing regulation,” he said.
Earlier this year, Panetta said that the digital euro will try to replicate the maximum level of privacy offered by cash, but conceded that it won’t be on the same level.
The investigation phase of the digital euro project is scheduled to conclude in October this year. Subsequently, the Governing Council of the ECB will decide on the next phase of the project, which is expected to be focused on further refining and testing the technical infrastructure and business arrangements for the digital euro.
A potential decision by the Governing Council to issue a digital euro would only be made after the relevant legislative act has been adopted.