Disagreement between European Commission and European Central Bank over potential risks linked to US-based stablecoins, as per a recent report.
In a move aimed at safeguarding European monetary sovereignty and maintaining the fungibility of digital money, the European Central Bank (ECB) is advocating for a revision of the MiCA (Markets in Crypto-Assets) regulations concerning stablecoins. The ECB's concerns revolve around the global usage of US dollar-pegged stablecoins, which could potentially undermine the EU's monetary sovereignty and the uniform fungibility of digital money within the Eurozone.
The ECB's primary worries focus on the risks that arise when US stablecoins dominate payments and settlements worldwide. This could create dependencies on a foreign currency that operate outside the EU's regulatory framework, complicating oversight, cross-border controls, and monetary policy implementation.
Specifically, the ECB and other European authorities fear that stablecoins issued outside the EU, especially US dollar stablecoins, may challenge the fungibility of money in the EU by introducing a large-scale digital asset pegged to a foreign currency. This could potentially lead to inconsistent regulation and lack of full interchangeability with the euro.
Moreover, sovereignty issues arise as control over this digital money (and its underlying reserves or monetary policy control) rests with non-European issuers and regulators. This limits the EU's ability to govern and influence its own payments landscape and monetary stability.
The ECB also highlights the potential increase in systemic risks and reduction in financial stability if non-EU stablecoins become integral parts of the EU's payments infrastructure without adequate regulatory alignment or supervision.
To address these concerns, the ECB is pushing for MiCA revisions to strengthen regulatory oversight, ensure stablecoins used in or impacting the EU comply with strict standards on reserves, transparency, and consumer protection, and to limit the dominance of non-European stablecoins.
The MiCAR regulations for crypto-assets, which came into force in January, already require EU stablecoin issuers to be willing to directly redeem stablecoins to end users. However, draft US federal legislation and New York rules do not require this.
The ECB views sovereignty as a key issue with stablecoins. The ECB President, Christine Lagarde, has called for a MiCAR revision, despite the question not touching on the Central Bank Digital Currency (CBDC).
The MiCAR regulation includes a clause where regulators can step in where they believe a stablecoin is threatening monetary sovereignty. Additionally, a clause in the MiCAR regulation requires a report from the Commission on whether there need to be amendments to address issues such as DeFi.
It's worth noting that stablecoins issued under both US regulations and MiCAR may exist, with USDC being the only known example currently. The daily transaction limit for foreign currency stablecoins across the entire EU is €200 million, but this does not cover other financial transactions or certain institutional payments.
The official from the European Commission stated that it makes no economic sense for U.S. users to impose redemption requests on European stablecoin issuers. The idea of a traditional "run" on an asset-backed one-to-one was deemed "nonsense" by the official.
However, there may be a risk in the unlikely event of a stablecoin run for those who hold stablecoins in self-hosted wallets, as it can be trickier to determine their location. If there were a stablecoin run, US stablecoin holders might want to redeem coins in the EU, but this is not allowed by the terms and conditions of USDC unless the person resides in the EU.
There has been some clash between the European Commission and the European Central Bank over stablecoins. Despite these differences, solid regulation for stablecoins is considered paramount by the European Union, according to President Lagarde.
In summary, the ECB seeks to adapt MiCA regulations to safeguard European monetary sovereignty and maintain the fungibility of digital money by addressing risks posed by the global usage of US stablecoins outside strict EU regulatory control. A piece on stablecoin fungibility is planned to be published within the week.
- The European Central Bank (ECB) is advocating for revisions of the MiCA regulations concerning stablecoins, as global usage of US dollar-pegged stablecoins could potentially undermine the EU's monetary sovereignty and the uniform fungibility of digital money within the Eurozone.
- To address these concerns, the ECB is pushing for MiCA revisions to ensure stablecoins used in or impacting the EU comply with strict standards on reserves, transparency, consumer protection, and to limit the dominance of non-European stablecoins.
- The ECB also highlights the potential increase in systemic risks and reduction in financial stability if non-EU stablecoins become integral parts of the EU's payments infrastructure without adequate regulatory alignment or supervision.
- Solid regulation for stablecoins is considered paramount by the European Union, according to President Lagarde, and, in summary, the ECB seeks to adapt MiCA regulations to safeguard European monetary sovereignty and maintain the fungibility of digital money by addressing risks posed by the global usage of US stablecoins outside strict EU regulatory control.
