As indicated in the box above, the digital euro is not the only, and not necessarily the best answer to all concerns identified by policymakers. One area where commercial banks could play a role is in the issuance of tokenised bank deposits or euro stablecoins. Their potential applications overlap to some extent with central bank-issued digital currency.
In crypto markets, dollar-based stablecoins have played an important role for several years. While euro stablecoins are available, they have not been issued yet by established EU-regulated institutions and so far only play a marginal role. The ECB has indicated that “version 1.0” of the digital euro will not be built on, or directly interoperable with, blockchain. If indeed DLT compatibility is postponed to “version 2.0”, this can realistically not be expected before 2030. This leaves the field open for private sector initiatives. A euro-denominated stablecoin or tokenised bank deposit could play a prominent role in EU crypto markets and help to unlock future-use cases. It could provide a boost for decentralised finance to develop into a more mature funding channel for the real economy..
While stablecoins and tokenised bank deposits can both be issued by banks, they are very different currencies. A tokenised bank deposit is generally taken to be commercial bank money residing on a blockchain/distributed ledger infrastructure. While the technology is different, from a regulatory perspective, it is likely to be be in scope of existing prudential regulation, and be treated like just another bank deposit. This means that the tokenised bank deposit can only be held by clients known to the bank. Also, a tokenised bank deposit is a liability of the bank, and as such is slightly more risky than central bank money. Retail holders will be covered by existing deposit guarantee schemes, so the distinction matters in particular for wholesale usage. Corporate and institutional users may want to limit their exposure to single banks.
A stablecoin, properly issued and regulated, is fundamentally different from a tokenised bank deposit in at least two aspects.
- It is a bearer instrument. In contrast to bank deposits, tokenised or otherwise, the holder need not be known to the issuing bank. From a regulatory (MiCAR) perspective, client onboarding and transaction monitoring are left to the stablecoin services provider (e.g. an exchange), which is not necessarily the same institution as the issuer.
- A stablecoin should be backed by specific safe assets. This implies central bank reserves and high quality liquid assets like sovereign bonds. Depending on the asset mix, the risk profile of a stablecoin is likely lower than that of a commercial bank deposit, and may approach that of central bank money. Again, this should not be a distinctive feature in a retail context, where deposit guarantee schemes provide more than enough coverage for day-to-day current account operations. It does matter in a wholesale context, however.
Tokenised bank deposits and stablecoins have different use cases and come with different regulatory obligations. The former could in principle be launched today, provided that supervisors agree to treat them like ordinary bank deposits. For the latter, the MiCAR framework won’t likely be in place until 2024. Still, that would give banks a headstart to central bank-issued digital currency, which in the eurozone won’t launch before 2026 and is at that time likely still unavailable on blockchain.
