- The European Systemic Risk Board has recommended banning multi-issuance stablecoins, citing risks to EU financial stability.
- While non-binding, the proposal could affect issuers like Circle and Paxos, whose reserves are largely held in US dollar assets outside the EU.
- The EU is also progressing on a potential digital euro, with a decision expected this year and a possible rollout in 2029.
The European Systemic Risk Board (ESRB) has issued a recommendation calling for a ban on multi-issuance stablecoins, arguing that such tokens could pose threats to financial stability across the European Union. These stablecoins, issued simultaneously within the EU and other jurisdictions, are seen as problematic because of the challenges they create for regulatory oversight.
Although the proposal is not legally binding, the ESRB’s intervention will likely place pressure on EU authorities to either introduce restrictions or demonstrate how risks can be contained without a ban. The measure could directly affect major operators including Circle Internet Group and Paxos, whose activities span both EU and non-EU regions.
Stablecoins are digital tokens designed to mirror the value of traditional assets, typically the US dollar, backed by cash or short-term debt securities. In the case of Circle and Paxos, much of their backing reserves remain in dollar-denominated assets outside the bloc, a practice that has fuelled concerns among EU policymakers.
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Concerns Over Dollar-Denominated Holdings
Christine Lagarde, President of the European Central Bank (ECB), who also chairs the ESRB, has consistently highlighted the dangers associated with non-EU stablecoin issuers, warning of “significant legal, operational, liquidity and financial stability risks at EU level” if these tokens gain traction in Europe. Similar warnings have been echoed by Italy’s central bank, which has pressed the European Commission to clarify the regulatory treatment of such assets.
Meanwhile, EU officials continue to consider the introduction of a central bank digital currency. Discussions over a digital euro began in 2021, with ECB executive board member Piero Cipollone suggesting that member states may reach a decision this year, paving the way for a launch as early as 2029.
If approved, a digital euro would serve as a publicly issued, secure and accessible digital payment method, operating alongside cash and potentially reducing reliance on private stablecoins.
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