Stablecoins more dangerous than tariffs

(Giorgetti dixit)

In general, we tend to think that the global power of the United States is economic, technological and military. Certainly true, but there is another, much more direct kind, one that doesn’t immediately come to mind. It is the power to manage the financial flows that give the US dollar its central role. People even talk about the weaponization of the dollar, that is, turning the dollar into a weapon.

Everything passes through the US financial system, every day, in many, if not almost all, of the things we do. From the gas we put in the car to the restaurant bill we pay by credit card, everything, one way or another, goes through US financial systems. Few people realize that the world’s largest market, in terms of economic size and population, the European Union, does not have its own payment system. The VISA and Mastercard credit card networks, not to mention Amex of course, are American. Sure, the main countries have their own, but try paying in Lithuania with Satispay (an Italian payment app) or in Romania with Pago Bancomat (the Italian debit card network). And let’s not go into the question of international (non-EU) payments here, which are handled by SWIFT, American of course. A bank transfer to Brazil or another non-EU country, for example, not only goes through SWIFT, but has to be converted from euros into dollars before becoming reais, perpetuating the dollar’s central role (what Giscard d’Estaing called the privilège exorbitant, the exorbitant privilege). And the money takes a couple of days to arrive, at no small cost.

And the increasingly popular Google Pay and Apple Pay are offshoots of the two US tech giants.

This is where stablecoins come into the picture. We’ve talked about them several times on this blog, including quite recently. They are cryptocurrencies pegged mostly to the dollar; in fact, the issuing companies (companies, not public bodies, let’s be very clear about that) mainly use them to buy US Treasury bonds, the so-called T-Bonds.

What advantages do they offer? Practically real-time transactions and negligible costs.

Here too, Europe finds itself playing catch-up. And what do we do? Obviously, instead of trying to compete on technological innovation, we come up with a nice piece of regulation. MiCAR, which we talked about at the time.

In practice, the European Union’s Markets in Crypto-Assets Regulation (MiCAR) provides that, from June 30, 2024, the issuance in the EU of stablecoins referencing a single fiat currency is restricted to credit institutions and electronic money institutions. The issuance of stablecoins referencing several fiat currencies or other underlying assets (“asset-referenced tokens” or “ARTs”) is restricted to credit institutions and companies that obtain specific authorization.

But there is a glimmer of hope. It’s the digital euro managed by the European Central Bank, which, with the well-known European speed, has been working on the project for a few years.

However, as always, there’s no rose without thorns. The digital euro risks throwing the banking system into crisis. The point is simple: why should savers keep their money in traditional banks if they can put it with the ultra-safe Central Bank? A holding limit could be set, an issue that is being discussed and considered, but then what’s the point? The debate is open.

Meanwhile, dollar stablecoins, including USDT/Tether, which hit the headlines a few weeks ago for buying into Juventus F.C., keep racking up adoption and market share.

In practice, the risk is that the new dollar-based instruments will quickly gain a user base big enough to threaten the very role of the single European currency.

It’s a hot topic. A Financial Times article from April 7 (below) covers the subject in depth, and a few days ago our Minister of Economy and Finance, Giancarlo Giorgetti, lashed out at them, calling “stablecoins more dangerous than tariffs”. Giorgetti stressed that Italy and Europe must strengthen and protect the euro as an international reference currency, also stepping up efforts to understand the digital euro and, furthermore, that the digital euro would be a fundamental step towards strengthening the European offering of means of payment usable in all use cases and throughout the area. And therefore minimizing the need for European citizens to resort to foreign solutions to access a basic service such as payments.