The report concluded that stablecoins \u201cshould not be regarded as a new class of safe asset but rather as a less volatile but risky crypto-asset.\u201d<\/p>\n
From the beginning, the bank has been backing the digital euro, a kind of central bank digital currency, as the main tool to modernize Europe\u2019s payments. But things have changed since then dramatically.<\/p>\n
Early attempts at central bank digital currencies hit bumps thanks to U.S. policy and market reactions, especially after the Trump administration raised doubts about CBDCs. Meanwhile, stablecoins have found a role in cross-border and crypto payments, and the ECB now seems to be rushing to keep Europe in the game.<\/p>\n
At the heart of Lagarde\u2019s argument is a concern over liquidity risks, which she says remain familiar even as new financial technologies emerge. Stablecoin issuers promise redemptions at face value, but if reserves are limited \u2014 or spread across different countries \u2014 there could still be trouble.<\/p>\n
\n\u201cIn the event of a run, investors would naturally prefer to redeem in the jurisdiction with the strongest safeguards, which is likely to be the EU, where MiCAR also prohibits redemption fees. But the reserves held in the EU may not be sufficient to meet such concentrated demand.\u201d<\/p>\n
Christine Lagarde<\/p>\n<\/blockquote>\n
The ECB has already tried to mitigate some of these risks through the EU\u2019s Markets in Crypto-Assets Regulation, which requires EU stablecoin issuers to hold substantial reserves in bank deposits and to guarantee redemption at face value.<\/p>\n
But as crypto.news reported earlier, the largest stablecoin issuer by market capitalization Tether pushed back hard against that requirement, with CEO Paolo Ardoino warning that MiCA rules could create systemic risks for banks.<\/p>\n
One way or the other, the rise of multi-issuance schemes \u2014 where EU and non-EU entities jointly issue stablecoins \u2014 exposes gaps in enforcement, she said. Lagarde likened the risk to that faced by multinational banking groups, which must ensure liquidity is available where and when it is needed, often under complex regulatory frameworks such as the net stable funding ratio and liquidity coverage ratio.<\/p>\n
Her remarks come amid a broader scramble by regulators worldwide to figure out stablecoin rules, which are increasingly used for crypto trading and cross-border payments. While some central banks still favor their own CBDCs, private stablecoins show no signs of slowing. Europe now faces two challenges though. One is to regulate new stablecoins and two: push the digital euro, which hasn\u2019t even gained adoption yet.<\/p>\n
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