MNI BRIEF: ECB Sees Limited Current EZ Stablecoin Risk

There is currently only a limited financial stability risk stemming from stablecoins across the eurozone, but the rapid growth justifies close monitoring and risks stemming from cross-border regulatory arbitrage should be resolved, the European Central Bank says Monday in a pre-release of the Financial Stability Report.

Global discrepancies across jurisdictions is the primary source of stable coin risk for the euro area, the report notes, citing differences in reserve requirements and redemption fee legislations.

US dollar-denominated stablecoins dominate the stablecoin market, the report notes, limiting stablecoins’ interconnections with euro area financial markets through their reserve assets. Even if stablecoins were to be adopted across a wider set of use cases, and even if interconnections with the euro area were to grow, the EU has implemented a stringent regulatory framework through MiCAR that
would mitigate potential risks, the early release says. 

Nevertheless, stablecoins are growing rapidly and they may find adoption across new use cases, which could introduce financial stability risks in the future, the ECB notes.