European Commission Eases Stablecoin Stance Contrasting ECB's Concerns

The European Union’s main executive body, the European Commission (EC), has adopted a more lenient stance on stablecoins, which contrasts with the European Central Bank's (ECB) more stringent approach. This shift has sparked optimism within the industry.

In response to the ECB's concerns about potential bank run risks from stablecoin multi-issuance in Europe and third countries, the EC has stated that such risks are "highly unlikely." The EC's spokesperson emphasized that even in the unlikely event of a run on a jointly issued token, redemptions by foreign holders would primarily occur in jurisdictions like the US, where most tokens circulate and the bulk of reserves are held.

The EC's stance on stablecoin multi-issuance in the EU and elsewhere has significant implications for the industry, marking a major win for local industry observers. This approach contrasts with previous warnings from the ECB, which published a non-paper in April highlighting the potential risks of joint stablecoin issuance with third countries.

The ECB's non-paper warned that such a scheme could weaken the EU’s prudential regime for electronic money token (EMT) issuers by increasing the likelihood of a run. The ECB also expressed concerns that joint issuance could undermine financial stability by weakening safeguards for EU consumers and bypassing critical protections of the Markets in Crypto-Assets Regulation (MiCA).

In June, the EC issued an in-depth analysis titled “Stablecoins and digital euro: friends or foes of European monetary policy?” The analysis found that there are significant institutional and regulatory barriers to the wider adoption of foreign stablecoins in the euro area. The EC noted that MiCA regulation has discouraged large foreign issuers from registering in Europe, citing Tether as an example. Tether, the issuer of USDt, the world’s largest stablecoin by market capitalization, refused to comply with MiCA due to reasons including the requirement to keep at least 60% of their reserves in European banks.

The EC's analysis concluded that the risks of joint stablecoin issuance with third countries are manageable with existing policies. Issuers can be required to have a rebalancing mechanism to ensure that reserves in the EU match token holdings in the EU. This approach has been welcomed by industry experts, who see it as a relief and a positive development for the stablecoin industry.

Juan Ignacio Ibañez, a member of the Technical Committee of the MiCA Crypto Alliance, highlighted that the EC's approach means that issuers like Circle will not be forced to functionally distinguish between USDC-US and USDC-EU. Ibañez noted that the EC is effectively advocating for the fungible treatment of locally and internationally issued coins, and for one entity to uphold the redeemability of coins issued by the other entity. This approach is seen as very positive news for the industry, as it preserves the cross-border usability of stablecoins, a fundamental feature inherited from blockchain technology.