The ECB supports the ban on jointly issued Stablecoins within Bloc and other jurisdictions, setting stages of conflict over how operators such as Circle Internet Group Inc. and Paxos Inc. manage their activities across borders.
The European Systemic Risk Committee, tasked with protecting the European financial system, passed a recommendation last week to ban the stability of so-called polynomials, according to people familiar with the arguments they asked to not be identified while discussing private information.
The ESRB guidance, approved by central bank governors and EU officials, is not legally binding, but is expected to pressure the authorities to adopt restrictions or justify ways to maintain financial stability without them.
ECB moves to limit multi-user stability
Stablecoins are cryptocurrencies that are fixed at the value of certain assets, such as the US dollars, and are usually backed by their corresponding cash reserves. In the multi-use model, license providers that issue tokens in the EU must establish local reserves in at least one member state, and must also manage the preparation of the same token issued in that member state.
The ECB, led by President Christine Lagarde, who chairs the ESRB’s General Committee, is a supporter of the proposed ban and has secured support to ensure support from EU officials and regulators. The ESRB has also identified possible alternative mechanisms to protect large-scale issuance stable coin arrangements in the EU. This was considered to be ineffective.
The impact on Stablecoin companies already authorized based on the multi-user model, including Paxos and Circle, remains unknown. The Finnish Market Bureau, which oversees Pax, and the French Ran-Autolité Prudentiel et de Lesso faction, which oversees the circle, also declined to comment.
The companies operate primarily outside the US, and their crypto-friendly regulatory environment has sparked concern among European regulators. The majority of their reserves are invested in cash equivalents in dollar denominated cash and cash equivalents, including short-term US government liabilities. A spokesperson for Circle and Paxos declined to comment, but some sources have noted prior support for the Commission’s heavily issued approach.
ECB raises alarms via a stupid idiot of dollar support
The ECB has been investigating the central bank’s digital currency (CBDC) that has been linked to the euro since 2021, but awaits an ongoing legal framework. Authorities have repeatedly expressed concern that it could pose a threat to financial stability and financial sovereignty in the European Union. Lagarde previously warned that foreign holders of Stablecoin could pose “significant legal, operational, liquidity and financial stability risks at the EU level.”
In its April presentation, the ECB said it is likely that the reserves held by third country publishers were invested in assets that were raised dollars outside the EU. Earlier this month, the Italian Bank urged the European Commission to define the legal status of stubcoins across borders.
The ECB does not police regulations that apply to these EU assets. The European Commission has so far avoided adopting a formal position on the issue.
Judith Arnal, a member of the Bank of Spain’s board of directors, wrote earlier this month that the debate over the stable coin of multi-Isance “substantial challenges to Mica’s reliability as a global benchmark.” She warned that the regulatory framework has challenged the ECB, the Commission and the European Parliament.
The European Commission, a member of the ESRB, did not respond to a request for comment.
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