Stablecoins could threaten the world’s financial system if not properly managed, according to Pierre Gramegna, Managing Director of the European Stability Mechanism (ESM).
During the International Monetary Fund’s (IMF) annual meetings which started on Oct 13 in Washington, Gramegna warned that if these digital assets become mainstream without being guaranteed as central bank money, “there’s a risk to the whole financial system, not just in Europe, but the whole world.” Bloomberg reported.
Gramegna’s remarks come after both the IMF and the Financial Stability Board raised similar concerns this week. The IMF said that the $305 billion stablecoin market could undermine traditional lending, and weaken control over money policy. Both parties also said it could cause investors holding some of the world’s safest assets.
Stablecoins are digital currencies designed to keep a steady value by being tied to traditional assets like the U.S. dollar or government bonds such as U.S. Treasuries. While they are often seen as safer than other cryptocurrencies, regulators fear their fast adoption could create unexpected risks if left unchecked.
“It’s not that we’re against stablecoins,” Gramegna said. He said that they should be developed “in a framework that is safe for consumers and financial actors.”
He also noted that the European Union should stay active in the crypto space, especially since “99% of stablecoins are denominated in dollars.” Without euro-based alternatives, he warned, Europe could lose a valuable opportunity.