As the European Central Bank prepares plans for a digital euro, it has also issued a warning about the nature of so-called stablecoins.
The ECB released a report outlining the possibilities of a digital euro and what it could mean for the European economy. While the report describes the positive impacts of digitization, the ECB is critical of some aspects of the crypto industry.
The central bank says that the term "Stable currency" it does not accurately describe how the asset is actually backed.
"As regulatory principles are established and approaches are defined, the term 'stable currency' should be replaced by a choice of terminology to divert emphasis from the issuer's promise of stability."
The ECB basically cautions that while it is billed as an asset whose price will not fluctuate, there is no guarantee that anyone's funds are insured. Instead, the bank recommends more descriptive names. These stablecoins should be classified into various groups based on their endorsement. For example, collateralized stablecoins must have a different name than algorithmic stablecoins according to the ECB.
The discussion about stablecoins comes at a time when digital versions of fiat money are on the verge of becoming popular political stances around the world. But governments are still trying to figure out how to provide the advantages of cryptocurrency and still have the stability offered by fiat currencies and the protections of the traditional banking system.
Christine Lagarde, President of the ECB, believes that issuing a digital euro will bring many benefits to the EU. She says the measure “It will increase our autonomy and ensure that Europe is better protected in the world of tomorrow. As legislators, you have a crucial role to play in designing policies that can revitalize our economies. "
Just a few days ago, the Chinese government called the switch to digital currencies the new "Battlefield between nations". China would have an advantage over the rest of the world, but others may have to follow suit. Clearly, countries around the world are seriously considering whether digital currencies will soon be a necessity.