Key Highlights:
- The European Commission has doubled down on its current stablecoin rules despite the ECB raising a dispute.
- The ECB is demanding stricter crypto laws to regulate stablecoins.
- The central bank requested clearer guidance on how multi-issuance arrangements will be tackled under MiCA.
The European Commission has shown that the groundbreaking crypto laws already existing in the European Union offer serious regulatory control over stablecoins, quashing recent demands by the European Central Bank (ECB) that tougher actions be taken.
On Friday, the Commission stated that the current Markets in Crypto-Assets (MiCA) framework gives it a solid and proportionate framework to deal with risks caused by stablecoins, and that it does not anticipate any significant changes at the moment.
Stablecoins, digital currencies linked to existing currencies like the euro or the U.S. dollar, have now become one of the most rapidly growing areas within the crypto ecosystem. The increased use as a payment and trading medium has raised debate among world regulators, especially on whether it will affect financial stability.
MiCA, the new regulatory framework adopted by the EU, which has been in operation since the beginning of this year, is one of the earliest general regulations of cryptocurrencies. But the Commission and the ECB have provoked tension on the application of the rules to so-called “multi-issuance” models, where the same stablecoin is issued by different parties within and outside the European Union.
ECB Expresses Concerns on Cross-Border Risk
According to the ECB, such a structure would pose weaknesses in the financial system of the EU, per Reuters. Its policymakers say that in case the tokens that were issued by non-EU affiliates were considered to be similar to those in circulation in the block, then those holding them were likely to redeem their assets with the one entity that was located in the EU in moments of stress.
According to the ECB, that situation would lead to the outflow of reserves in the EU, which would increase financial instability. Brussels has been recommended to implement “urgent safeguards” by the European Systemic Risk Board (ESRB), which is led by ECB President Christine Lagarde, to stop these spillover effects.
The perception by the ECB has put fresh pressure on the European Commission to explain how MiCA is to be enforced in such cross-border situations.
Industry Pushes Back
In turn, the crypto industry stakeholders have asked the Commission to be more lenient. This week, six of the largest crypto trade associations, and including companies such as Circle, which is one of the largest stablecoin issuers, submitted a joint letter to European Commissioner Maria Luis Albuquerque. In the letter, they requested clear guidance on how multi-issuance arrangements will be treated under MiCA.
The letter asked Brussels to “confirm multi-issuance in principle” and establish how such operations can operate within the EU’s regulatory perimeter.
A spokesman of the Commission confirmed the letter as received and said that officials are “working towards providing such clarification as soon as possible.” The spokesperson underscored that MiCA already establishes adequate mitigation measures to deal with the risk of stablecoins, which can be viewed as trust in the current structure.
Global Differences in Approach
Although the EU believes it has the right balance between its rulebook and innovation and stability, other jurisdictions are shifting towards the opposite direction. This year, the United States passed federal laws aimed at promoting the use of stablecoins in traditional finance, which is viewed as an attempt to promote the use of digital dollars.
Analysts observe that almost all stablecoins are dollar-pegged. According to a recent report by JPMorgan, the supply of stablecoins provides that “99% of stablecoin supply is pegged to the dollar,” a factor that has been reinforcing the demand for the U.S. currency in the world.
With the discussion ongoing, the confrontation between the European banking regulators and the crypto companies highlights a larger conflict: how to balance digital finance innovation and preserve monetary and financial stability.
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