Stablecoins May Threaten EU Market Integration And Interoperability - ECB
Out of three possible stablecoin situations, two could potentially lead to concerns for EU market integration and interoperability, and to risks to financial stability, therefore affecting safety and efficiency of the payment system, according to the European Central Bank (ECB).
In their latest report, the ECB Crypto Assets Task Force said that stablecoins may fall out of the scope of the Single Euro Payments Area (SEPA) Regulation"that harmonises the way cashless euro payments are made across Europe and mandates interoperability."
Stablecoin initiative such as Facebook's Libra, said the paper, could potentially result in a pan-European policy, but a pan-European reachability (having the ability to make payments at the national and EU level under the same conditions for all consumers) could necessitate"a deliberate effort."
Additionally, if there are multiple stablecoin structures, the situation may lead to a fragmentation across the structures' networks. "From a demand side perspective, users can face trade-offs between convenience on the one hand and extra costs (e.g. cash-out and other penalties, idle balances) and shifting obstacles on the other hand," the paper argued.
Within the paper, the Task Force aimed to assess stablecoins' consequences for the euro area based on three scenarios for the uptake of stablecoins, as they explained:
1. As a cryptoassets accessory function that allows securing cryptoasset earnings in less volatile assets without leaving the crypto ecosystem;
2. as a new payment method;
3. as an alternative store of value.
The first scenario is called"merely the continuation of the current state of the market," that has so far posed no concerns for the financial sector and/or central bank tasks.
On the other hand,"stablecoins of the type envisaged in the second scenario may reach a scale [of operations such that fragilities within the stablecoin arrangement itself, and its links to the financial system, may give rise to financial stability risks - or in other words] such that financial stability risks can become material, and the safety and efficiency of the payment system may be affected."
When it comes to the third situation,"stablecoins collateralized by high-quality liquid assets (e.g. tokenized funds) might increase the demand for safe assets, thereby possibly affecting asset price formation, collateral valuation, money market functioning and monetary policy space." The third situation is the least plausible - since stablecoin arrangements through collateralization won't be exempted from a low rate environment -- but also the most relevant from a monetary policy perspective, the paper said.
And even though"significant implications for monetary policy could arise" should this least plausible scenario materialize, euro deposits and cash are still"expected to be resilient to the possible advent of an'alternative store of value'," said the Task Force.
However, both in the second and third scenarios, stablecoins"are likely to coexist with cash in read more payment transactions." The reason behind this, the newspaper said, is that"the unique characteristics of cash" is"being physical," while stablecoins - at least at a short/medium term - are expected to compete primarily with other electronic means of payment.
The Task Force stated that"even in a scenario where stablecoins satisfy the demand for storing value, they are likely to coexist with euro banknotes" - a statement they claimed stands true for the need from outside the euro area more info as well, particularly as euro banknotes are held by those who doubt their own country's currency or banking system, but do hope the international read more currency in money as its physical form. "It is hardly imaginable that in such situations people will store their last resort assets in a digital form," they added.
The paper concluded that, under more plausible situations, the Eurosystem owns a range of tools to manage the effect of stablecoins on its mandate and tasks, while it continues tracking the stablecoins market growth so as to be able to respond to rapid changes in all possible situations.
Meanwhile, in the US, as reported today, the Office of the Comptroller of the Currency (OCC) has explained that US national banks and federal savings associations are now officially permitted to engage with fiat-backed stablecoins, while the Securities and Exchange Commission (SEC) said that stablecoins are not necessarily securities.