The European Central Bank has recently expressed concerns over President Donald Trump’s favorable stance towards cryptocurrencies, particularly the rise of dollar-backed stablecoins. The ECB has warned that the increasing popularity of these stablecoins could pose a significant threat to financial stability within the eurozone and potentially overwhelm the European Union’s new regulatory framework for cryptocurrencies.
In a confidential policy paper obtained by Politico, the ECB has urged the European Commission to revisit the Markets in Crypto Assets Regulation (MiCA), citing worries that the current rules may not be robust enough to counteract the impact of aggressive crypto reforms in the United States. The proposed STABLE and GENIUS acts in the US could potentially push the supply of dollar-backed stablecoins to $2 trillion by 2028, a significant increase from the current $240 billion.
One of the biggest fears expressed by the ECB is the possibility of “contagion” from the rapidly expanding US stablecoin sector. The ECB President, Christine Lagarde, and digital payments chief, Piero Cipollone, have voiced concerns that the rise of US-backed stablecoins could lead to a shift in savings from euros to dollars, potentially jeopardizing EU monetary sovereignty and exposing European banks to redemption risks.
The central bank’s paper specifically criticized MiCA’s allowance for “multi-issuance” structures, which could enable EU-based issuers to partner with foreign firms to expand stablecoin distribution. This could lead to a dominance of dollar-backed tokens in EU markets, creating an “oligopolistic” structure that favors non-EU issuers and increases European exposure to US Treasury debt.
In response to the ECB’s concerns, the European Commission has defended the existing law, arguing that the regulation already includes provisions to mitigate risks posed by foreign-backed stablecoins. The Commission emphasized that crypto firms must adhere to strict requirements to operate within the EU and suggested that the risks associated with global stablecoins may be overstated and manageable under the current legal framework.
Despite the disagreement between the ECB and the European Commission, both institutions agree on the importance of rigorous enforcement and acknowledge the geopolitical implications of the US administration’s efforts to internationalize the dollar through crypto innovation. The tension between the two organizations highlights broader strategic concerns within the EU regarding financial independence, particularly as Trump’s crypto-friendly policies gain momentum and digital dollars continue to gain traction in unstable economies around the world.
Overall, the debate surrounding dollar-backed stablecoins and the potential impact on the EU’s financial stability underscores the complex and evolving nature of the cryptocurrency landscape. As regulatory bodies grapple with the challenges posed by new technologies and global economic shifts, it is essential to strike a balance between innovation and stability to safeguard the integrity of financial systems worldwide.