The European Central Bank said that the risks associated with stablecoins in the euro zone are limited. Reason? Low retail acceptance of less than 1%. As added, monitoring of this market will continue.
European Central Bank on stablecoins
The report, authored by ECB financial stability experts Senne Aerts, Claudia Lambert and Elisa Reinhold, suggests that the use of stablecoins does not extend beyond cryptocurrency trading and thus highlights their low risk to financial stability in the euro zone.
Currently, financial stability risks from stablecoins are limited in the euro area, but the rapid growth (of the stablecoin market) warrants close monitoring and risks from cross-border regulatory arbitrage should be eliminated
– we read in the report.
Today, cryptocurrency trading is by far the most important use case for stablecoins
the authors said, adding that in the case of stablecoins, other use cases such as cross-border payments “play only a minor role.”
Citing a July study by the International Monetary Fund, the report also concluded that a significant portion of stablecoin flows are cross-border, but noted the lack of evidence that these flows are systemically linked to remittances.
The report’s authors also highlighted the limited use of stablecoins in retail transactions, referring to Visa’s estimates that only about 0.5% of stablecoin volumes were organic retail transfers (less than $250).
The use of stablecoins appears to be driven primarily by their role in the cryptocurrency ecosystem, and it remains an open question whether stablecoins will be widely adopted in other applications
– concluded the ECB team.
Dollar stablecoins
Stablecoins linked to the US dollar, which dominate the market with their as much as 84% share, are not expected to pose a threat – their connections with the euro zone financial markets are limited.
Even if the use of stablecoins increased and connections with the euro zone were to expand, the EU’s regulatory framework for cryptocurrencies, the Regulation on Markets in Crypto Assets (MiCA), would limit potential risks, say the authors of the document:
To mitigate the risks associated with cross-border regulatory arbitrage and reduce the risk of spillover from insufficiently regulated jurisdictions, it is crucial to further harmonize the regulatory framework at a global level.
