Ignoring the European Central Bank's warning, the EU plans to introduce new regulations allowing the circulation of foreign stablecoins
The new regulation proposal will treat stablecoins issued outside the EU as interchangeable with the same brand of stablecoins that are limited to circulation in the EU market, thus enjoying "equal treatment." The European Central Bank is concerned that stablecoins may threaten financial stability and affect the implementation of the digital euro, but the European Commission believes the risks are manageable, emphasizing that even the impact of a bank run would mainly be in the United States
Despite warnings from the European Central Bank that the proposed standards could undermine the stability of regional banks during market volatility, the European Commission is still set to announce new regulations for the rapidly growing stablecoin market in the coming days.
According to media reports on Wednesday, the EU's executive body plans to issue formal guidance that proposes treating stablecoins issued outside the EU as interchangeable with the same branded stablecoins that are limited to circulation within the EU market, thus enjoying "equal treatment." The report cited an anonymous source stating that the release of this guidance is scheduled for the coming days.
The Battle Between Digital Euro and Stablecoins: Financial Sovereignty and Market Risks
As early as June 2023, the EU proposed legislation to create a digital euro, known as central bank digital currency, but progress has been slow since then.
The European Central Bank views the digital euro as a response to former U.S. President Trump's push for stablecoins.
European Central Bank President Christine Lagarde reiterated her call for the implementation of the digital euro on Monday in the European Parliament, describing it as key to European financial sovereignty. She criticized competitive privately issued stablecoins, pointing out that they pose risks to "monetary policy and financial stability" as they may attract bank deposit outflows and do not always maintain their fixed value.
In response to concerns from the European Central Bank, a spokesperson for the European Commission stated to the media:
"The likelihood of a run occurring for a well-governed and fully collateralized stablecoin is very low."
The spokesperson also noted that even if a run occurs, "foreign holders will redeem their tokens in (for example) the United States, as most tokens circulate in the U.S. and most reserves are also held in the U.S."
