Bank of Italy Chief Warns Banks Must Tokenize Money to Stay Competitive

Highlights:

• Bank of Italy warns banks must tokenize money to stay competitive as stablecoins expand.
• Dollar-backed stablecoins are dominating global markets while euro alternatives remain limited.
• ECB is planning blockchain settlement in 2026 as Europe advances digital payment systems.

Fabio Panetta told Italy’s banking association on Wednesday that commercial banks must convert their money into digital tokens to stay competitive. He said stablecoins continue expanding with strong backing from the United States administration. Panetta warned that banks risk losing relevance if they fail to adapt their money to digital formats. He linked competitiveness directly to how quickly banks modernize payment functions.

Bank of Italy Governor Fabio Panetta says bank money and central bank money will remain the backbone of the financial system, with stablecoins playing only a supporting role.

He warns that stablecoin stability still depends on fiat pegs, keeping regulators cautious. pic.twitter.com/gbznFxgDDO

— AVOLA (@Avolaofficial) January 21, 2026

Panetta said digital money now matters for routine transactions. He noted that consumers are increasingly expecting instant transfers and lower fees. Traditional systems often struggle to meet those expectations. As a result, banks that rely on traditional infrastructure are experiencing a decline in payment volume. Tokenized deposits allow banks to operate within modern payment rails.

Panetta indicated that banks should think about being relevant rather than countering change. According to him, tokenization enables deposits to move within distributed ledger systems. Such systems facilitate quicker settlement and better transaction documentation. Issuance and compliance remain in control of the banks. This strategy, according to Panetta, keeps banks busier with day-to-day payments.

Bank of Italy Highlights Stablecoin Risks for Europe

The officials of the Bank of Italy are still expressing concerns regarding the dominance of dollar-backed stablecoins. Dollar stablecoins occupy the majority of the total stablecoins in the world. Euro-backed stablecoins have a small share in the market despite the large economic size of the eurozone. Policymakers perceive this imbalance as a threat to monetary power.

The European Central Bank has raised financial stability issues that are associated with the growth of stablecoins. Big issuers now possess large quantities of U.S Treasury debt. Quick redemptions when market stress occurs can destabilize bond markets. Banks and other financial institutions might be affected by the disruptions.

Panetta associated these risks with Europe, depending on U.S payment companies. The majority of card payments in the region are processed by American firms. European merchants are often subjected to a higher compliance cost due to geographic classification. According to the officials, this reliance puts Europe at the mercy of foreign business.

Commercial banks have resisted the euro digital project. Most banks are scared of losing deposits and losing payment revenue. Banks, he said, already lost much payment activity to foreign platforms. He believes that opposition to the digital change can worsen the current losses.

European economists have also contributed to the debate. A coalition of scholars called upon legislators to focus on a public digital euro. They cautioned that poor design decisions might enhance dependence on private systems. Meanwhile, large banks plan to launch a stablecoin based on the euro. UniCredit, ING, and BNP Paribas entered the initiative via a Dutch arrangement.

According to Reuters, a group of 10 European banks including ING, UniCredit and BNP Paribas has formed a new company, Qivalis, to launch a euro-denominated stablecoin in the second half of 2026, aiming to counter the U.S. dominance in digital payments. Qivalis is applying for an…

— Wu Blockchain (@WuBlockchain) December 2, 2025

Europe Prepares for Digital Settlement Changes

European institutions have already started adapting settlement infrastructure. The ECB announced that it will permit distributed ledger transactions to be settled in central bank money in 2026. The framework shall apply to regulated financial institutions. Authorities indicated that the action facilitates secure online payment conduct. The plan also enables testing under current supervision.

The ECB finalized the digital euro preparation stage in October 2025. The phase included technical design, privacy attributes, and operational constraints. Meanwhile, lawmakers need to pass the needed legal framework.

Assuming the rules are approved by the lawmakers, pilot testing might commence by mid-2027. The ECB intends to experiment with holding limits and transaction flows. Authorities are interested in making the digital euro operational in the same way cash is. The central bank is now aiming at a complete launch by 2029.