ECB has said it needed to tighten MiCA to protect against threats from dollar-pegged stablecoins

What’s new? The European Central Bank (ECB) has said that the US crypto-friendly policy threatens the EU economy and emphasized the need to adjust existing legislation to reduce potential risks. Officials fear that reforms backed by Donald Trump will trigger asset outflows to the United States and undermine the EU’s efforts to achieve strategic independence.

Material by Politico

What else is known? Of particular concern to European officials are two stablecoin bills pending in the US House and Senate, known as STABLE and GENIUS.

Most stablecoins, the most popular in the crypto market, are pegged to the dollar, and in some countries they are already being used as a more affordable alternative to the dollar in the face of national currency inflation. Some governments fear they could replace traditional money, undermine national sovereignty, and make citizens dependent on private issuers of crypto assets.

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At the moment, the EU-wide Markets in Crypto-Assets (MiCA) regulation, which came into force at the beginning of the year and protects the rights of crypto investors, already offers protection against such developments. In particular, it introduces strict requirements for issuers of foreign currency-based stablecoins and limits the volume of issuance of such assets, which reduces threats to the EU economy.

Nevertheless, the ECB believes that MiCA in its current form is incapable of countering the booming US stablecoin industry. ECB President Christine Lagarde has said that MiCA needs to be modified to take into account the unique threats posed by dollar-pegged stablecoins.

Planned reforms in the US expand the reach of the US stablecoin industry. Standard and Chartered predicts the supply of dollar-backed tokens could reach $2 trillion by 2028, up from $240 billion today.

The ECB says the regulation in its current format overly encourages a “multi-issuance” model, in which European issuers of stablecoins pool their resources with issuers in third countries.

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The ECB fears that allowing issuers of dollar-pegged stablecoins to offer their product in the EU could favor “existing non-EU stablecoin issuers who have already established an oligopolistic market position,” and trigger an influx of EU investment in US debt, undermining the bloc’s plans to strengthen its own financial market.

Most dollar-denominated stablecoins are backed by US Treasuries, and the largest issuer of stablecoins, Tether, is among the top 20 investors in US government debt.

In turn, the European Commission believes that the ECB has misinterpreted the MiCA regulations and there is no need for an urgent change in the legislation, as it was designed specifically to address the problems mentioned by the bank.

Moreover, the European Commission said that the ECB has recently deliberately inflated the threat of dollar-pegged stablecoins to strengthen political support for its controversial project of a digital euro with a pan-European payment system. This would supposedly protect Europe’s financial infrastructure from crypto assets.