The European Central Bank (ECB) has warned banks and monetary policy stakeholders about the risks of stablecoins. The ECB’s statement comes as discussions around the CLARITY law are gaining momentum.
What does the European Central Bank say about stablecoins?
Speaking at the Bank of Korea’s International Conference on Central Banks and the Future of Money, European Central Bank Executive Board member Isabel Schnabel addressed stablecoins. She stated that although the benefits of digital payment tools are clear, there are many risks that must be taken into consideration.
The ECB’s Schnabel added that central banks and regulators should be alert to risks associated with stablecoins. It particularly highlighted the case where stablecoins are used as payment instruments.
According to Schnabel, widespread adoption of stablecoins could lead to “a new wave of banking disintermediation.”
She added that the traditional bank funding base will become more volatile and vulnerable if households and businesses move money from traditional bank deposits to stablecoins. It can then increase its financing needs from wholesale sources, which are considered more volatile and sensitive.
The ECB official also pointed to the threat of running stablecoins in times of financial stress. If there is less trust in the assets backing the stablecoin, they are “exposed to the risk of drawdowns,” Schnabel said.
She added that the high demand for repayment may lead to the sale of bond reserves. Moreover, it warned that this could cause spillover effects in the government bond market and the fixed income market in general.
The European Central Bank has also expressed concerns about the emergence of dollar-backed stablecoins. Most stablecoins are still pegged to the US dollar. Schnabel said an increase in its use could further strengthen the international dominance of the US dollar. This point is consistent with Federal Reserve Governor Christopher Waller’s recent views on stablecoins.
Stablecoins take center stage in US legislative decisions
The European Central Bank’s statements come at a time when members of the US Congress are expected to hold a meeting Hearing on the CLARITY Act. However, some in the banking industry have opposed the bill, including JPMorgan CEO Jamie Dimon.
In the morning with Maria Damon pointed out That banks will still oppose the latest version of the CLARITY Act as it moves forward with the Senate Banking Committee. “We’ll fight it; if we lose, we’ll live,” Damon said.
The JP Morgan chief said that if companies behave the same way as banks, they should be subject to the same rules. He opposes the stablecoin revenue provisions in the bill. He also commented that the proposed framework contains “inadequate” anti-money laundering (AML) and Bank Secrecy Act (BSA) measures.
Discussion of the CLARITY Act coincides with the President Donald Trump call To move forward with encryption legislation. He pledged to create a “future-proof” regulatory system for the industry.
