EU calls for urgent measures for “stablecoins” - Differences in regulations could threaten the European financial market
The European Union's financial risk watchdog has called for urgent action on stablecoins, which are issued partly within the bloc, reflecting concerns from the European Central Bank. The ECB has warned that a failure of these instruments could trigger a massive withdrawal of reserves.
Stablecoins are a type of cryptocurrency that aims to maintain a stable value by backing it with a reserve asset, such as a currency or a group of assets.
The European Union has adopted one of the world's strictest regulations on crypto assets, but policymakers express concern that issuers from outside the bloc face fewer rules and could import financial risk into the European market.
"The General Board stressed that the schemes of many third-country issuers, with fungible stablecoins issued both in the EU and outside it, introduce vulnerabilities and require an urgent policy response," the European Systemic Risk Board (ESRB), chaired by ECB President Christine Lagarde, said in a statement.
EU rules require stablecoins to be fully backed by reserves. Lagarde stressed that the EU should hold companies issuing stablecoins, both inside and outside the EU, accountable to the same standards.
In multi-issuer schemes, a European Union entity and one outside the bloc jointly issue stablecoins, but the Union's strict rules do not apply to the non-EU issuer, creating market imbalances.
The main concern is that in the event of a massive run on assets, investors will prefer to take their money within the EU, due to the stronger guarantees. However, reserves may not be sufficient to cope with concentrated demand, causing a liquidity shortage and possibly forcing the ECB to intervene.
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