Investment of $2.2 million in Germany's Credibur to develop a credit infrastructure platform
The European Union (EU) has raised concerns about the US's approach to regulating stablecoins, highlighting potential challenges and risks for the EU economy. A new study commissioned by the European Parliament's Committee on Economic and Monetary Affairs suggests that the US's lighter regulatory touch could strengthen the global dominance of the US dollar, posing challenges to the EU economy.
One of the key issues at hand is regulatory divergence. The US's GENIUS Act offers a less stringent regulatory approach compared to the EU's Markets in Crypto-Assets (MiCA) regulation, which could create competitive advantages for US stablecoin issuers. This could potentially attract more stablecoin activity to the US, potentially diminishing the EU's financial competitiveness.
The EU's stricter regulations, such as requiring stablecoins to maintain strong capital buffers and keep reserves in EU-based banks, could limit the growth of non-EU stablecoins in the region. The European Central Bank (ECB) is particularly concerned about the growth of US dollar-denominated stablecoins in the EU, which could threaten the region's monetary sovereignty and undermine the effectiveness of monetary policy and financial stability.
The EU's push for a digital euro is partly a response to this challenge, as it seeks to ensure that digital currencies used within the EU align with EU monetary policies. The ECB has also advised to closely monitor the development of dollar-pegged stablecoins in the EU and limit their circulation if needed.
Another concern is the potential for systemic risks due to regulatory arbitrage. The US GENIUS Act allows smaller stablecoin issuers to operate under state-level oversight, which could lead to regulatory arbitrage. This may encourage companies to exploit less stringent regulations in certain US states, potentially creating systemic risks if these smaller issuers fail or behave irregularly. The EU's stricter regulations aim to mitigate such systemic risks by imposing uniform standards across the bloc.
The report also emphasizes the importance of a robust payments infrastructure that enables central bank digital currencies (CBDCs) to interoperate with each other and with non-CBDC fast payment systems, supporting features such as currency conversion and capital flow management. A robust payments infrastructure should facilitate international cooperation, including information sharing, standardized communication protocols, and harmonized regulatory frameworks.
In June, the stablecoin market reached an all-time high of US$251 billion. Stablecoin issuers often keep deposits in traditional banks, and a sudden withdrawal of large sums could strain bank liquidity and heighten the risk of a systemic crisis. Stablecoins can suffer from liquidity and maturity mismatches, which means that during times of financial stress, users may not be able to redeem their stablecoins at face value.
Corporate enthusiasm has fueled much of this surge, with companies like Walmart and Expedia exploring their own stablecoins, and companies owned by Wall Street giants also considering launching a joint stablecoin. If stablecoins not regulated within the EU circulate freely in nearby regions, they could circumvent EU rules, raising risks of money laundering and increasing the exposure of EU households and companies to exchange rate and financial stability risks.
In conclusion, the EU's stance against the US's light touch on stablecoins highlights concerns over regulatory competition, monetary sovereignty, and potential systemic risks. The EU seeks to maintain control over its financial markets and ensure that stablecoin issuers adhere to strict standards to protect financial stability. The report suggests that EU regulators should promote multilateral payment systems based on cooperation and respect for states' monetary autonomy.
- Businesses, such as Walmart and Expedia, are investing in the development of their own stablecoins, which could potentially bypass EU regulations and pose challenges to the EU's financial stability if they circulate freely in nearby regions.
- To mitigate potential risks associated with systemic risks due to regulatory arbitrage, the EU's stricter regulations aim to impose uniform standards across the bloc, ensuring that stablecoin issuers, whether technology companies or smaller players, operate within a robust and secure regulatory framework.
