The European Central Bank (ECB) is gaining support for a proposal to ban stablecoins that are issued jointly within the European Union (EU) and other regions. If implemented, this move could create challenges for companies like Circle Internet Group Inc. and Paxos Inc., which operate these digital currencies across multiple countries.
People familiar with the matter shared with Bloomberg that the idea came from the European Systemic Risk Board (ESRB), which suggested last week to ban “multi-issuance” stablecoins. As reported by Bloomberg, the ESRB’s suggestion, which was agreed on by important bank leaders and EU officials, isn’t a law yet. However, it will push local authorities to either follow the ban or explain how they can keep the money system safe without it.
The ECB is strongly supporting a ban on certain stablecoins because it sees big risks to the EU’s money system. Christine Lagarde, President of the ECB and Chair of the European Systemic Risk Board, has warned before that it’s dangerous for people outside the EU who hold stablecoins to depend on companies based in the EU, pointing out problems like legal issues, operational challenges, money shortages, and risks to stability.
An ECB report from April also said that money reserves held by companies outside the EU are probably invested in US dollar assets outside the EU, which could hurt the EU’s plan to improve its savings and investment system. The ESRB has also suggested some clearer safety rules as a less favored option instead of a ban, but they haven’t shared many details.
Earlier this month, the Bank of Italy asked the European Commission to explain the legal rules for stablecoins that work across borders. However, the ECB doesn’t have the power to make these rules happen, and the European Commission hasn’t decided on an official position yet, so the matter is still unclear.
MiCA weakness debate impacts US stablecoin firms
Judith Arnal, a member of the Bank of Spain’s board and a researcher at the Centre for European Policy Studies, wrote in a recent research paper that this disagreement shows weaknesses in the EU’s crypto rules, called MiCA. She said that if the ECB, the Commission, and the European Parliament can’t agree, it might make the world think MiCA is weak and can be understood in different ways.
Further, the United States’ friendly approach to cryptocurrency has also worried some regulators in the EU. This is because most of the money reserves for stablecoins from companies like Circle and Paxos are kept in US dollars and short-term US government debt.