EU Commission to Ignore Central Bank’s Warnings on Stablecoins

The European Commission is reportedly set to announce rules governing the stablecoin market.

The rollout of these rules comes despite warnings from the European Central Bank that the regulations could threaten the region’s banks when markets grow more volatile, the Financial Times reported Wednesday (June 25).

The commission plans to issue formal guidance proposing that stablecoins issued outside the European Union are treated as interchangeable with same-branded versions allowed only on EU markets, the report said. An announcement is set for the days ahead.

Earlier this week, ECB President Christine Lagarde told the European parliament that “stablecoins … pose risks for monetary policy and financial stability [and] must therefore be governed by sound rules, especially when they operate across international borders,” per the report.

Stablecoins are pegged to a sovereign currency, usually the U.S. dollar, and are backed by liquid assets held in reserve. There are $250 billion in these coins in circulation around the globe, with analysts forecasting the market to increase tenfold in the coming years, the report said.

That has left governments worldwide updating regulations to meet the growing demand. For example, lawmakers in the United States are close to adopting the country’s first stablecoin rule, known as the GENIUS Act.

However, central banks are uneasy about legislation that encourages growth and could contain loopholes in risk management, according to the report. The ECB has warned that coins issued by the same company in other jurisdictions fungible with EU-issued tokens could strain the bloc’s banks in periods of market stress.

The EU mandates that stablecoins issued within the bloc must keep the bulk of their reserves in an EU-based bank, although holders can redeem their coins for cash from the issuer, the report said. The ECB said the new rules could heighten the risk of a run on reserves, with the threat of contagion among banks, as overseas holders scramble to access reserves intended for EU consumers.

Meanwhile, Walmart and Amazon are interested in issuing their own stablecoins, which could help these companies save billions of dollars on processing fees. However, there are challenges in setting the foundation for a new payments shift.