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PayPal’s new stablecoin threatens the European Union’s financial stability, warns ECB executive

PayPal’s new stablecoin threatens the European Union’s financial stability, warns ECB executive
Fabio Panetta, executive board member of the European Central Bank, made the case for a European CBDC. Credit: European Union 2023/ EP/Alain Rolland.
  • Big tech firms like PayPal offering stablecoins could threaten Europe’s monetary sovereignty, European Central Bank executive Fabio Panetta said at a hearing.
  • Scepticism plagues the digital euro proposal in the European Parliament.
  • The central bank will decide whether to launch a digital euro in October.

PayPal’s new stablecoin threatens the European Union’s financial stability, according to an executive at the bloc’s central bank.

Fabio Panetta, a European Central Bank executive board member, issued that stark warning on Monday when he returned to the European Parliament’s economic committee to answer lawmakers’ burning questions as they prepare for negotiations on a proposal to launch a digital euro.

“Without the digital euro, there will be other players that would come into the picture which would enter into the European market providing their own digital means of payment with potentially very negative consequences for privacy, for sovereignty and for financial stability,” Panetta told EU lawmakers.

The central banker named PayPal’s new stablecoin as an example of such a threat. The digital payments firm announced its stablecoin in August, boosting morale for blockchain-based payments.

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For private tech firms, the priority is increasing market share and their user base, according to Panetta.

“They couldn’t care less [...] about the disintermediation of European banks,” he said. “They have no incentive to take care of financial stability. They will have their own rules for the protection of privacy.”

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Panetta’s comments come as central bank digital currencies have become a loaded issue around the world. Stateside, Republican squabbling for the presidential nod have all but fallen over each other to discredit CBDCs as mass-surveillance tools.

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Similar concerns have dominated the digital euro debate, despite the likes of Finance Commissioner Mairead McGuiness saying: “This is not a Big Brother project.”

Unconvinced parliamentarians

While officials in the ECB and the European Commission push for a digital euro, many directly-elected members of the European Parliament cast doubt about what the benefits of a CBDC would be.

“People say: What can I do with a digital euro which I can’t do with a combination of cash and my account?” said Markus Ferber, a German centre-right lawmaker, during Monday’s hearing. German left-wing parliamentarian Joachim Schuster raised similar concerns.

NOW READ: ‘This is not a Big Brother project’: EU proposal for digital euro faces privacy and sovereignty fears

Panetta answered that a digital euro will enable users to pay everywhere in the EU, offline payments could grant peer to peer payments more privacy, and translating reliable central bank-backed cash into digital form.

But many remained unconvinced.

“It’s a solution looking for a problem,” Michiel Hoogeveen, a Dutch right-wing MEP said.

The ECB has spent the last two years investigating a CBDC prototype. The European Commission unveiled its legislative proposal for the digital euro at the end of June. Commission officials have defended the controversial proposal as “not a conspiracy.”

The central bank’s top officials will decide whether to bring a digital euro into life in October. The discussions in the European Parliament could impact that decision, ECB officials have previously said.

“Our investigation phase is now in its final stage, preparing the ground for the Governing Council to decide whether to move to the next phase of the project,” Panetta told the economic committee.

Privacy has ranked at the top of public concern for the CBDC, according to an ECB survey, and has remained top of mind.

Another contentious topic is the holding limits of the digital euro on individual accounts, which would limit what users can use the CBDC for. This cap is designed to prevent liquidity problems and potential bank runs.

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In the meantime, ECB is preparing its response to the commission’s proposals on the digital euro and euro as legal tender.

MiCA’s parliament lead appointed

In the European Parliament, centre-right lawmaker, Stefan Berger, has been appointed to lead the parliament’s negotiations on the digital euro.

Berger was also the lead negotiator on Europe’s landmark Markets in Crypto-Assets regulation, or MiCA, which passed this April and will apply across the bloc from 2025.

An EU digital currency would make the bloc “more independent of third countries and belong in the digital age,” the German MEP posted on X. “However, the project will only succeed if you can trust the digital euro just as much as you can trust cash.”

PayPal did not immediately respond to a request for comment.

Inbar Preiss is DL News’ Brussels-based Regulation Correspondent. If you have a tip about a CBDC story, reach out to her via email at inbar@dlnews.com.