The European Commission is preparing recommendations for the regulation of stablecoins, following warnings from ECB president Christine Lagarde regarding risks to financial stability.
New Rules for Stablecoins
The European Commission intends to propose formal guidance in the coming days, which will allow stablecoins issued outside the EU to have the same status as those issued within the bloc. This is aimed at closing a legal loophole surrounding these bank-free digital currencies.
Stablecoin Market and Regulatory Challenges
Stablecoins aim to maintain a value comparable to a country's currency, most often the US dollar, and are backed by liquid assets held in reserve. Currently, approximately $250 billion worth of such tokens are in circulation, and analysts predict that the market could grow tenfold within the next few years.
Diverging Opinions on Risk and Oversight in the EU
Inside the EU, there is a divide between the Commission and the ECB. The Commission has pushed back against the bank's warnings that treating foreign stablecoins the same as domestic ones could cause strain on banks. At the same time, experts warn of instability due to inadequate oversight measures.
The new rules for stablecoins could reshape the digital currency market in Europe; however, the disagreements between institutions in the EU underscore the need to consider risks to financial stability.
