By 
In the digital currency landscape of Europe, a battle is brewing with central banks on one side and private issuers on the other. This divide could create headwinds for the adoption of stablecoins in a fragmented environment, with some regions embracing them while others are more cautious.
European Central Bank (ECB) executive board member Fabio Panetta highlighted the growing prevalence of “private closed-loop solutions” in payments during a speech on September 4. He suggested that such solutions could pose a risk to traditional financial service models as private payment service providers seek to expand their customer bases.
Panetta emphasized that while the entry of big tech companies or other large payment providers may initially drive innovation, competition could be severely hindered if these entities achieve monopolistic positions, as has been observed in other digital sectors. He further noted that in the absence of a digital euro, the emergence of dominant private players in the digital payments market could significantly impact the financial sector.
Panetta cited PayPal’s announcement of its U.S. dollar-denominated stablecoin as a noteworthy example of the private sector’s activities in the digital payments arena. PayPal’s stablecoin, called PayPal USD, is designed to facilitate payments and is fully backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents. Customers can use PayPal USD to fund purchases and convert cryptocurrencies supported by PayPal to and from PayPal USD at checkout.
The stablecoin market has been marked by volatility, with instances where dollar-pegged coins have deviated from their 1:1 parity. For example, Tether’s USDT market cap fell by 1.2% to $82.9 billion in August, and the overall market cap of stablecoins has decreased for the 17th consecutive month, declining by 0.4% to around $125 billion.
While it’s commonly believed that central bank digital currencies (CBDCs) and stablecoins can coexist, Panetta’s comments suggest that European central banks view private issuers as competitors. The evolving regulatory landscape in Europe has also considered imposing limitations on larger stablecoin issuers, capping their daily transactions at the equivalent of $220 million. These restrictions could lead to fragmented ecosystems for stablecoin-related commerce.
PayPal, as an international ecosystem, reported a 5% increase in international revenues on a currency-neutral basis in its recent quarterly report. Cross-border transaction processing volumes (TPV) grew by 3% to $47 billion, constituting 12% of TPV.
The battle between private issuers and central banks in Europe’s digital currency landscape will likely shape the future of stablecoins and their adoption in the region.
Comments