EU Central Bank Seeks Ban on ‘Multi-Issuance’ Stablecoins

The European Central Bank reportedly wants to ban stablecoins jointly issued in Europe and other jurisdictions.

That’s according to a Tuesday (Sept. 30) Bloomberg News report, which says this sets the stage for a clash over the way stablecoin companies like Circle and Paxos manage their operations across borders.

Last week, regulatory body the European Systemic Risk Board (ESRB) passed a recommendation to ban so-called “multi-issuance” stablecoins, sources familiar with the discussions told Bloomberg.

The board’s guidance is not legally binding, the report added, but will pressure governments in the European Union to implement the limits, or detail how their countries can still preserve financial stability without them.

As the report notes, stablecoins — cryptocurrencies pegged to assets such as the U.S. dollar — tend to rely on a one-to-one reserve of traditional funds to back their value. With the multi-issuance model, licensed stablecoin providers issuing tokens in the EU need to maintain a local reserve in at least one member state while they continue to issue an issue and manage reserves for functionally identical coins in other parts of the world.

The report also points out that European Central Bank President Christine Lagarde has warned about the risks in a scenario in which foreign holders of a stablecoin had a claim on EU-based issuers, cautioning that such a situation posed “significant legal, operational, liquidity and financial stability risks at EU level.”

This week saw two dueling perspectives on stablecoins on display at the Sibos conference in Frankfurt, Germany.

Federal Reserve Governor Christopher Waller spoke in favor of stablecoins being issued by the private sector, while Bundesbank President Joachim Nagel shared his reasons for caution over the tokens.

Waller argued that the private sector is better able to innovate than central banks, and that stablecoins provide an attractive way for people in countries outside the U.S. to access dollar banking services.

“If stablecoins present a lower cost alternative to consumers and businesses, I am all for it,” Waller said.

Nagel, a member of the European Central Bank’s governing council, said stablecoins present “previously unknown risks,” and that stablecoin issuers lead to bank runs or increased volatility. He said the “anchor role” of central bank money must be upheld.

This is playing out at a time when reach of the $290-plus billion stablecoin market is extending “beyond cryptocurrency rails into mainstream payments and institutional finance,” as PYMNTS wrote Wednesday.

“The next few years will reveal whether the marketplace’s flurry of launches marks the beginning of a structural shift or simply the latest chapter in stablecoins’ long courtship of the enterprise,” that report added.