Lagarde distances herself from stable cryptocurrencies

BarcelonaStable cryptocurrencies–stablecoins in English– are digital assets linked to an underlying asset through a parity relationship. 98% of the market is denominated in dollars, meaning that each of these cryptocurrencies is backed by funds equivalent to a certain amount of greenbacks. In response to proponents of the eurozone promoting stablecoins denominated in Europe to avoid losing monetary sovereignty to the United States, the president of the European Central Bank (ECB), Christine Lagarde, has argued that "to strengthen the international role of the euro, stablecoins are not the best way to do it".

"The disadvantages are significant and outweigh the short-term advantages in terms of financing conditions and international projection," she warned during her speech at the I Latam Economic Forum, held this Friday in Roda de Berà (Tarragona). Instead, she reiterated her call for greater integration of the eurozone's capital markets.

Lagarde agreed that stablecoins offer advances in both monetary and technological terms, even outside the crypto universe. However, she countered that these two advantages must be analyzed "separately" and not "confuse the instrument with the result, the tree with the forest." That is, to apply the positive aspects of the instrument without reproducing the entire model.

Beyond the United States, CaixaBank plans to launch a

stablecoin this year together with eight other European banks. In this case, the reference will be the euro and each of these digital currencies will be invested in equivalent highly liquid assets, so that if the client wants to recover it a few minutes after having delivered it, they must be able to have it immediately.

Risk to financial stability

According to Lagarde, stable cryptocurrencies can pose a risk to financial stability. She explained that they depend on the "credibility and liquidity of the assets that support them" and that, if it weakens, there could be a flood of redemption requests that spill over precisely into the markets for the underlying assets.

Likewise, she also pointed out that the proliferation of this figure reduces the Central Bank's ability to influence the availability of credit in the market through interest rates. If retail deposits migrate to stablecoins, banks will grant "less credit or less efficiently".

"In the euro area, banks continue to be the main source of financing for the real economy," she recalled, while in the United States this effect is less pronounced because companies have broader access to capital markets.

Technological advances

In technological matters, the ECB president has agreed that stablecoins represent an "especially attractive" opportunity because they enable the creation of a shared infrastructure, while that of the European Union "continues to be one of the most fragmented in the world." However, paradoxically, they risk the principle that a unit of currency is worth the same regardless of who issues it: "They can deviate from their parity in situations of stress, they do not offer the same unconditional certainty as central bank money," she warned.

Despite the reservations about stablecoins, Lagarde has spoken out in favor of private tokenized money, that is, the digital representation of traditional money: "There are no arguments against the role that private tokenized money can play within a broader ecosystem." In fact, she opined that once the settlement system being developed by the euro area is available, "market participants will have no reason to default to relying on a foreign private substitute," referring to stablecoins.