• The President of the European Central Bank (ECB) expects that the digital Euro will complement fiat money.
• The term stablecoin is inappropriate for the digital Euro, according to the ECB.

The President of the European Central Bank, Christine Lagarde, spoke at a conference before the Franco-German Parliamentary Assembly about the introduction of the digital euro. In her speech, Lagarde said she expected the digital euro to be an asset that would not replace fiat money, but rather serve as a supplement.

The President of the European Central Bank also hopes that citizens in the region will use the digital euro as an alternative to “private digital currencies”. In this way, the ECB expects that a European and sovereign currency will remain at the heart of the payment system in this region.

Lagarde’s statements refer to reports published by the European Central Bank at the end of 2019. The financial institution recognized that Stablecoins and digital assets, such as Facebook’s Libra, have the potential to be powerful payment instruments and therefore started the project to develop the digital euro. The ECB also recognized that digital assets pose a threat to the security, sovereignty and financial stability of the region.

With this in mind, Lagarde stated that the European Union must catch up with foreign providers in terms of innovation in payment methods. To this end, Lagarde hopes that the digital euro will be a tool that will enable the region to use the euro to build an inclusive payment platform and provide better access to a “wide audience”.

On Sept. 10, Lagarde said the EU has not reached a decision on whether to introduce a digital euro yet. However, she also noted that a task force to study the effects of a CBDC would be announced “in the coming weeks.”

The digital Euro is different from stablecoins

In addition, a more recent report published by the European Central Bank considers the term stablecoin “inappropriate” to refer to the digital euro. According to the report, initial tests and the development of the digital asset indicate that it lacks the characteristics associated with a stablecoin. The institution states in the report:

As regulatory principles are established and approaches are defined, the term ‘stablecoin’ should be replaced by a choice of terminology to shift the emphasis away from the issuer’s promise of stability (…).

The report has been drafted by the ECB’s Crypto Assets Task Force. One of its objectives is to unify the terminology related to stablecoins, their characteristics, and the functions they perform. The institution states that it expects fiat money and euro deposits to be “resistant” to the expansion of stablecoins as payment methods. In addition, the institution disclosed the following on the regulation of this asset class:

(…) the Eurosystem is reviewing its oversight framework for payment instruments and schemes, with a view to broadening its scope to include any electronic payment instruments that enable end users to send and receive value, including based on stablecoins.

The report will use the Single Monitoring Mechanism (SSM) to begin requiring banks to establish a “risk management” framework if they are involved in ecosystems or services associated with stablecoins, like Tether (USDT). In this way, the institution will begin to coordinate international efforts to follow the “same business, same risk, same rules” principle of the Euro system.