The global economy seeks well-managed currencies for international commerce. The U.S. dollar has long dominated, but rising concerns about U.S. fiscal discipline have created demand for an alternative. At the same time, no one wants to hold China’s renminbi.
This opens the door for euro stablecoins to shine. Europe has earned the world’s trust due to its regulatory maturity. Europe should collaborate with the private sector to develop EU stablecoin infrastructure.
Unfortunately, EU central bankers (like their Chinese counterparts) have been obsessed with issuing a central bank digital currency (CBDC). By being state controlled, CBDCs become a tool for surveillance and control. China’s digital yuan, e-CNY, establishes
this precedent. At any time the PRC can surveil and turn-off a user’s money.
On the other hand, stablecoins protect the public’s privacy. If the government wants to access an individual’s funds, they have to obtain a judge’s warrant. This follows the precedent of issuing writs to credit card companies to access customer transactions.
Additionally, CBDCs, by being a government monopoly, present catastrophic risk. What happens if it gets hacked, or if there is a bug? In the world of stablecoins, there have been numerous glitches. But users diversified to other stables.
The anti-stablecoin chorus emanating from European officials has been relentless. ECB President Christine Lagarde warns that stablecoins could lead to the “privatization of money,” undermining monetary policy.
But stablecoins are not privatized money. Privatized money existed during America’s Free Banking Era (1837–1862), when over 7,000 currencies were issued by private banks, each backed by different local assets. Half of these banks failed.
Stablecoins are nothing more than digital checks. Fiat-backed stablecoins are tokens backed by cash in a bank. Users can use these tokens to transfer ownership of their cash, just like paper checks. No one calls checks “private money.” Stablecoins are the
upgrade.
Importantly, new US legislation (Genius Act) ensures that stablecoin tokens need to be audited and backed by cash and liquid securities. This means stablecoins will not bounce like traditional checks. The regulation also stipulates that in the case of
bankruptcy, stablecoins have priority over other creditors. The regulation may not be perfect, but is a solid start. Maybe the EU can take it a step further by creating an insurance scheme?
Innovation is a critical piece of the stablecoin promise. Walmart and Amazon are testing stablecoins as customizable digital coupons, sidestepping billions in credit card fees. Should it be the government’s job to provide coupon technology for Amazon or
check-printing services? Of course not.
The choice before Europe is clear, expand monetary influence through regulated stablecoins, or risk becoming a financial fossil.
Teymour Farman-Farmaian, CEO, Higlobe
Ayur Vallecha, Intern, Higlobe
