ECB Chief Warns of Stablecoin Liquidity Risks in Europe

Christine Lagarde, the President of the European Central Bank (ECB), has warned about the liquidity risks that stablecoin assets could pose. She cautions that without quick and strong regulations, these digital assets might destabilize financial markets across the European Union (EU). Christine Lagarde Urges Swift EU Legislative Action At a recent European Systemic Risk Board (ESRB) conference, Lagarde stated that innovation in digital assets is positive, but unregulated stablecoins pose serious risks, especially during market downturns. She pointed out that the use of stablecoins has grown faster than current regulations can keep up with, creating a concerning lack of oversight. Notably, stablecoins are digital currencies backed by real-world assets, like the U.S. dollar. They are widely used in global crypto trading. Lagarde urges the EU policymakers and regulators to work together to create rules that ensure stablecoins are fully backed, managed transparently, and supervised by central banks. This is in line with concerns raised by global financial authorities , including the United States Financial Stability Oversight Council (FSOC) and the Bank for International Settlements (BIS). ECB Sees Risk in U.S. Stablecoin Policies Recall that in April, the ECB also raised concerns about the possible impact of U.S. President Donald Trump’s support for cryptocurrencies . The ECB believes new U.S. laws supporting stablecoins could affect Europe’s financial markets. Although the EU’s Markets in Crypto-Assets (MiCA) law has introduced stronger rules, the ECB says they may not be enough. The central bank is especially worried about how European stablecoin issuers can work with partners outside the EU. The ECB believes this could bring outside risks into Europe’s financial system. As such, the ECB urges EU lawmakers to make MiCA tougher to reduce these potential risks. The financial bank wants more control over how stablecoins are created and stronger rules on money moving between countries. The goal is to protect Europe’s financial system from changes in U.S. crypto policies. MiCA Reshapes Stablecoin Dynamics in Europe The introduction of MiCA has been a game-changer for the stablecoin ecosystem in Europe. These regulations, governing asset-referenced and electronic money tokens, began their phased rollout in June 2024. As reported by TheCoinRise, euro-dominated trading volumes have consistently exceeded 2023 averages throughout 2024. In a different view, the European Commission affirms that MiCA rules have made it harder for companies to issue stablecoins in Europe. The commission explained that only 11 crypto firms have been able to pass its strict rules. One amongst others is Circle, the company behind the U.S. stablecoin USDC. The commission’s statement, however, does not fully agree with the ECB’s warning. The commission said the ECB may have misunderstood how MiCA works. This is because the law already provides strong control over crypto risks within the European Union. The post ECB Chief Warns of Stablecoin Liquidity Risks in Europe appeared first on TheCoinrise.com .