On Thursday, the chairman of the European Banking Authority (EBA), expressed his skepticism over the increasing use of stablecoins. He also suggested that central banks should veto large stablecoins if they have fears they could upend monetary policy.
Speaking at an event, José Manuel Campa, EBA chair, highlighted the risk that the use of permissionless blockchains could prove financially unsound. He then urged the central banks to take a step and veto such large stablecoins. He said:
Central banks should have the power to veto the widespread introduction of so-called stablecoins if they affect public policy goals, including financial stability or monetary policy.
Reportedly, the EBA chair in the coming months will be releasing the detailed rules to implement the European Union’s Markets in Crypto Assets regulation (MiCA). MiCA, which was passed by the EU lawmakers last month will require stablecoin issuers to gain a license and hold suitable reserves. Additionally, the EBA will also be responsible for directly supervising major issuers under MiCA.
According to sources, MiCA has provisions to allow central banks to intervene in proposals to issue new stablecoins, referred to in the legislation as asset-referenced tokens. It also requires issuance to cease if the tokens become widely used with over 1 million transactions per day. Additionally, different rules apply for stablecoins tied to the value of a single fiat currency, known as e-money tokens.
Further, Campa did acknowledge the potential of stablecoins in the future and said he could see a future where stablecoins will “become even more relevant” as a means of payment. He also included the example of how private payment systems now complement central bank money but stressed they would have to comply with “sensible guardrails,” including respecting anti-money laundering laws.
In answer to a further question from former U.S. Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad, Campa also appeared to share concerns voiced by the U.S. central bank, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency that stablecoins on decentralized, permissionless blockchains could prove unsafe or unsound.
Campa said that EU stablecoin issuers “have to ask for permission… you have to put forward your project and that project has to be assessed, particularly for the concerns that have been put forward by the U.S. regulators.” He added that scrutiny would be greater on more ambitious projects.
All issuers will be subject to a robust authorization and also supervisory framework going forward including prudential governance, conduct of business, and redemption arrangements, with the largest issuers facing enhanced stress testing of their reserves.
Notably, stablecoins have been a topic of talk amongst regulators across the globe. In February, Agustin Carstens, general manager at the Bank for International Settlements (BIS), said that the events of 2022 have cast “serious doubts on the ability of stablecoins to act as money.”
In particular, the crypto industry has very enthusiastically responded to the approval of MiCA which will take effect around July 2024. Certain major players such as Circle and Unstoppable Finance have already announced their intention to issue stablecoins under MiCA.