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Brussels is poised to announce new rules for the rapidly growing stubcoin market, honing its warning from the European Central Bank that it could destabilize regional banks during the period of market volatility.
The European Commission, the executive arm of the EU, plans to issue formal guidance suggesting that Stablecoins issued outside of BLOCs will be treated as interchangeable with versions of the brand, which are only permitted in the EU market, according to those who have been described for their content. The announcement was set for the next few days, said someone who knows the situation.
That public guidance addresses the grey realm of EU law surrounding this form of cryptocurrency. It works like a digital cache and is outside the banking system.
This comes after ECB President Christine Lagarde told the European Parliament on Monday that “Stablecoins……) the risk of financial stability (and) must be governed by sound rules, especially when operating across borders.”
Stablecoins aim to track the value of sovereign currencies, usually US dollars, and are supported by spare liquid assets.
Politicians around the world are rapidly updating financial market rules to explain their rise. The number of such tokens in circulation is around $250 billion, and analysts predict that the market will be ten times higher in the coming years.
U.S. Treasury Secretary Scott Bescent said this month that it could circulate worldwide, and its spread could “strengthen the US dollar’s advantage.” Country lawmakers are approaching agreeing to the first rules overseeing markets known as acts of genius.
However, central banks are increasingly wary of laws that may include loopholes to drive growth and manage risks.
The ECB has expressed concern that coins issued by the same company in other jurisdictions that can be sterilized with EU-issued tokens could put a burden on the bloc’s banks during times of market stress.
Under EU regulations, stubcoins issued within BLOCs must maintain most reservations in a Bloc-based bank, but owners can redeem the coins directly from the issuer for cash. The ECB said the new rules could potentially be contagious between banks and increase the risk of running in reserves as foreign holders are in a hurry to access reservations for EU consumers.
If the redemption rush is “amplified by massive development and ridiculous difficulties, European safeguards, backups and deposits will be exposed,” Lagarde said.
Diego Baron Osio, partner at Clifford Chance in London, said:
“Technically, from a purely legal perspective, the coin couldn’t be counted on,” he said. “In that case, if regulations are attached to the issuer, you have this problem. Their solubility is not specifically defined (in European regulations),” he said.
On Tuesday, the bank said it would “bad performance” on the key requirements for widespread use as money, as it is not widely used as money because it is not supported by central banks, and unlike banks, it does not have sufficient guardrails for illegal use, and unlike banks, it does not have the flexibility of funding required to generate loans.
The issue of non-EU stubcoin has sparked friction between the two EU institutions at a series of individual meetings this year, with the committee opposing bank concerns.
“A run in a well-protected and fully secured stablecoin is very unlikely,” a committee spokesperson said, adding that even if that happens, “foreign holders will (for example) redeem the token in the US, where most of the tokens will be circulated and mostly pending.”
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One cryptocurrency executive said the ECB’s harsh warnings are driven in part by banks’ concerns that large Stablecoin operator reserves can be stored in countries with relatively small banking systems. The ECB’s criticism was motivated by the desire to create a digital currency issued by the central bank. This could compete with the ridiculous and ridiculous things issued by private companies, potentially covered, executives added.
To counter some of the risks, the ECB proposed asking other countries to provide legal guarantees that reserves from other countries can be moved to the EU in times of crisis, according to those explained at the closure conference held this month. It also warned that there are no contracts between the other countries and the EU regarding comparable standards of regulations.
However, committee officials rejected the need for assurance for the transfer of assets at the meeting, and ECB officials asked: People said.
The committee proposed instead that state supervisors could conduct risk assessments of themselves and seek additional safeguards.
“European supervisors issue approvals on a very strict timeline without adequate due diligence,” said Andrea Resty, professor of financial risk management at Bocconi University in Milan. “It will all be left to the National Supervisor Artisan Initiative,” he added.
Additional Reports by Olaf Stobeck of Frankfurt
