Crypto Frontline

A recent publication uploaded on the European Central Bank’s website talks about a regulatory and financial stability perspective on global stablecoins. Prepared by Mitsutoshi Adachi, Matteo Cominetta, Christoph Kaufmann, and Anton van der Kraaij, the release talks about the benefit provided by stablecoins and at the same time, highlights the importance of developing proper regulatory measures.

Central banks around the world had become active when it comes to digital currencies, with rumors related to a Japanese CBDC emerging recently. The US Federal Reserve and China’s PBoC had also been involved.

ECB in favor of stablecoins?

The publication, which you can find here, highlights the benefits of using stablecoins, but at the same time warns against challenges and risks associated with accelerating the digitalization of the financial system:

Stablecoins with the potential for global reach (“global stablecoins”) could help to address unmet consumer demand for payment services that are fast, cheap, and easy to use and can operate across borders. However, while there is indeed the potential for such benefits, global stablecoins also pose challenges and risks. 

Improving the efficiency of financial services, providing stable means of payment/store of value, and spreading access to services/products to all corners of the globe, are a few of the main benefits of implementing stablecoins.

Regulating stablecoins

According to the ECB, the regulatory requirements for any given stablecoin will depend on the complexity of its structure. It could fall under one or several different regulatory frameworks, or even none. The central bank talked about qualifying the asset management function as an issuer of e-money, an investment fund, or even a bank.

Risks related to stablecoins had also been discussed. The risk of oin liquidity run impairing the functioning of the stablecoin arrangement and the risk of contagion spreading to the wider financial system (resulting from impaired stablecoin arrangement).

What could be a piece of bad news for the broad cryptocurrency market, though, is that there is still no interest from the ECB with regards to traditional cryptocurrencies. Tokens like Bitcoin, Ether, or Litecoin, are not yet considered to be reliable payment systems, probably due to their volatility. Global stablecoins, on the other hand, would be backed by hard assets and that will ensure a stable value over a given period. The good news is that the ECB is acknowledging the digitalization trend from an early stage and that should lead to a smooth implementation of stablecoins or digital payment systems.