France Warns of Stablecoin Risks as US Accelerates Regulation

The United States is accelerating its efforts to regulate stablecoins favorably, while France is taking a more cautious approach. The Bank of France has expressed significant concerns about the risks associated with stablecoins, including liquidity, cybersecurity, manipulation, and fraud. These concerns are not new, and the Bank of France has been vocal about the potential dangers stablecoins pose to global finance.

According to Agnès Bénassy-Quéré, Deputy Governor of the Bank of France, stablecoins present a range of risks that could impact monetary sovereignty. The Bank of France has warned that stablecoins could eventually replace traditional currencies, leading to complete disintermediation. This concern is exacerbated by the dominance of the US dollar in the stablecoin market, with USDT and USDC together reaching 215 billion dollars. The collapse of TerraUSD in May 2022 serves as a stark reminder of the chaos that can ensue from a single wave of withdrawals, resulting in billions of dollars evaporating.

François Villeroy de Galhau, Governor of the Bank of France, has gone further, warning of a "risk of de-Europeanization" due to the invasion of dollar-backed stablecoins. He emphasized that these crypto-assets pose a serious risk of currency privatization. In response to these concerns, Europe is exploring the digital euro as a credible alternative to stablecoins. The digital euro, supported by the European Central Bank (ECB), aims to guarantee monetary autonomy in a world dominated by crypto platforms. The project, which relies on a public-private partnership with commercial banks, is expected to materialize by the end of 2025.

In parallel, discussions about euro-compatible stablecoins are gaining traction. Some actors are considering tokenizing bank deposits as a way to integrate stablecoins into the European financial system. However, European voices are calling for strict regulation of stablecoins, citing the need for clarity, speed, and stability in the market. The stablecoin battle is not just financial; it is strategic, with the United States and Europe taking divergent approaches to regulation.

The Bank for International Settlements (BIS) shares the concerns of the Bank of France regarding the risks of stablecoins. However, the BIS also recognizes the ongoing revolution in asset tokenization, with major players like Blackrock transforming this disruption into a viable model. The shift towards stablecoins and digital currencies is just beginning, and the outcome of this battle will have significant implications for global finance.