Panetta Calls for Tokenization of Bank Money to Compete with Stablecoins

TLDR

• Fabio Panetta, Governor of the Bank of Italy, urges commercial banks to adopt tokenized money to stay competitive in the digital age.
• Panetta emphasizes that traditional bank money will remain essential but must be converted into digital tokens for future relevance.
• He highlights the growing influence of stablecoins, driven by strong support from the U.S. government to boost global dollar demand.
• The Bank of Italy Governor stresses that stablecoins will not replace traditional money but will coexist within a digital financial system.
• Panetta points out Europe’s dependence on U.S. companies for payments and the need for Europe to create a digital euro for financial sovereignty.

Fabio Panetta, Governor of the Bank of Italy, has urged commercial banks to adopt tokenized money or risk falling behind as stablecoins grow in influence. Panetta’s comments come amid the global rise of digital currencies and efforts by the U.S. government to back dollar-denominated stablecoins. With European officials concerned about the region’s monetary sovereignty, Panetta highlighted the need for both central bank and commercial bank money to become fully digital to remain competitive.

Tokenization and the Future of Bank Money

During a recent address in Milan, Panetta emphasized that traditional bank money would continue to play a critical role. However, he warned that commercial banks must convert their money into digital tokens to stay relevant in an increasingly digital financial ecosystem.

He explained that digital tokens would become integral to the functioning of the financial system. The tokenization process involves converting financial assets into digital forms, making transactions more efficient and transparent. Panetta’s call for tokenization aligns with broader trends in the financial sector, where banks are exploring the potential of blockchain to improve payment systems.

Stablecoins Gaining Momentum with U.S. Support

Panetta noted that stablecoins would continue to gain momentum, particularly driven by strong support from U.S. policymakers. Stablecoins are digital assets pegged to traditional currencies like the dollar, offering a stable alternative to volatile cryptocurrencies. Panetta pointed out that stablecoins would likely thrive as part of Washington’s strategy to bolster global demand for the U.S. dollar.

Despite the rise of stablecoins, Panetta remains cautious about their role. He acknowledged that the future of stablecoins is still uncertain, but emphasized that they would not replace traditional money.

Europe’s Challenges and the Digital Euro

The Governor also addressed Europe’s struggles with the dominance of dollar-backed stablecoins in the global market. While the U.S. stablecoin market is valued at around $300 billion, euro-backed alternatives are valued at only $680 million. Panetta raised concerns about the risks this dominance poses to Europe’s financial stability and sovereignty.

To counter this, the European Central Bank (ECB) has been exploring the launch of a digital euro. The ECB aims to have the digital euro operational by 2029, which would help maintain the relevance of European central bank money in the digital age. Panetta’s comments underline the urgency for Europe to develop its own digital currency to ensure it is not left behind in the global digital asset race.

Panetta also pointed out Europe’s reliance on U.S. companies for payment processing. He noted that more than two-thirds of Europe’s payments are handled by American firms like Visa and Mastercard. This dependency highlights the need for Europe to secure its own digital payment infrastructure, including the digital euro.

The debate over the digital euro continues, with strong opposition from commercial banks in some European countries. These banks worry that the introduction of a central bank-backed digital currency could undermine their role in the financial system. However, Panetta remains firm, urging banks to think beyond short-term concerns and focus on long-term digital adaptation.

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