Stablecoins: The ECB fears losing control over the EURO

Stablecoins, these cryptos pegged to stable assets, are experiencing rapid growth. With a market estimated at 300 billion dollars, their massive adoption worries the European Central Bank (ECB). Why do these digital assets represent a danger for Europe and the Euro?

Europe: The ECB considers stablecoins a threat to the Euro

Stablecoins, often backed by the US dollar, could weaken the Euro’s position in the markets. According to the ECB, their growing adoption threatens European monetary sovereignty since over 95% of these assets are denominated in dollars. Therefore, a massive migration of bank deposits to stablecoins could reduce banks’ capacity to finance the real economy.

The numbers speak for themselves. Indeed, bank deposits in the euro area amount to 17 trillion euros. If a significant portion of these funds were converted into stablecoins, banks could lose a major source of funding. With an estimate of 300 billion dollars, the ECB fears that stablecoins, if dominated by instruments not denominated in euro, could further weaken the position of the single currency.

Finally, stablecoins offer fast and low-cost transactions, attracting more and more users. However, their dependence on the dollar poses a major challenge for European monetary policy, which could lose effectiveness against a foreign digital currency, according to the recent ECB document.

Crypto: what regulations to oversee stablecoins and protect the Euro?

Faced with the risks posed by stablecoins, Europe has designed the MiCAR regulation, which imposes strict limits on electronic money-denominated assets. This regulatory framework aims to preserve financial stability while allowing innovation. In the United States, the Genius Act proposes a similar approach, requiring that stablecoins be backed by liquid assets, like the dollar.

Furthermore, the ECB is working on a digital euro project, a dematerialized version of the European currency. This project, still under development, could offer a secure alternative to private stablecoins like Tether. With holding caps per person, the digital euro aims to protect bank deposits and strengthen monetary sovereignty in the Euro zone.

Stablecoins raise major questions about the future of monetary sovereignty in Europe. Between financial innovation and systemic risks, their growth forces regulators to act. The ECB, with the digital Euro, must find a balance between regulation and freedom to preserve the stability of the Euro. In your opinion, are stablecoins a revolution or a threat to the European economy?