Brussels is on the brink of disrupting the balance between crypto innovation and banking stability. Despite warnings from the European Central Bank, the European Commission plans to validate the interchangeability of stablecoins issued outside the EU with their European versions. A groundbreaking decision as stablecoins already weigh in at over $250 billion and could rise to $2 trillion according to the US Treasury.
Foreign Stablecoins: Soon to be Authorized as if they were European?
The upcoming directive aims to clarify a persistent legal ambiguity: stablecoins like USDC or USDT issued outside the EU but bearing the same brand as a locally issued token can be treated as identical. This technicality changes everything: it would allow tokens backed by reserves located outside of Europe to be used within the EU… as if they were regulated by its own laws.
A major step for the crypto ecosystem, but a red line crossed according to the ECB. Christine Lagarde reminded the European Parliament on Monday that these tokens “pose risks to financial stability and must be regulated strictly, especially when they cross borders“.
The Fear of a Bank Run Orchestrated from Abroad
The core issue: the management of reserves. Today, stablecoins issued in the EU must hold the majority of their assets as collateral in European banks. But what would happen if non-European holders massively demanded the redemption of their tokens, thus draining the reserves meant to protect European consumers?
The ECB paints a bleak scenario: a panic over a stablecoin could trigger a bank run, jeopardizing the European banking system through a domino effect. Even worse: no legal guarantee exists to force a third country to repatriate funds to Europe in case of emergency.
Brussels Goes It Alone
On the Commission’s side, the tone is more relaxed. “A well-managed and fully collateralized stablecoin has no reason to experience a run,” said a spokesperson. And they point out that the majority of tokens and reserves involved are located outside of Europe anyway, limiting the continent’s exposure.
To ease tensions, Brussels proposes that each national supervisor can assess risks and, if necessary, impose additional guarantees. But for the ECB, this decentralized approach lacks rigor.
A Battle of Influence Behind the Technicalities
Behind this regulatory showdown lies a battle of influence. The ECB, amidst its work on a digital euro, sees the rise of stablecoins as a direct threat to its monetary sovereignty. A dominant stablecoin, backed by offshore reserves, could become a de facto parallel currency.
And it’s no coincidence that this debate erupts as the United States finalizes its own law, the Genius Act, which aims to regulate stablecoins while strengthening the dollar as the dominant currency.
