Stablecoins issued outside the EU should face stricter regulatory oversight, advocates ECB President

ECB President Calls for Urgent Action to Regulate Non-EU Stablecoins

Christine Lagarde, President of the European Central Bank (ECB), has urged policymakers to address regulatory gaps, particularly for stablecoins issued by entities outside the EU's Markets in Crypto-Assets (MiCA) framework.

Speaking at the ninth annual conference of the European Systemic Risk Board, Lagarde emphasized the need for "robust equivalence regimes" for stablecoin issuers outside the EU to operate within the region. She stated that lawmakers must ensure adequate safeguards are in place to protect EU investors and financial systems.

Lagarde highlighted the importance of requiring stablecoin issuers to back their stablecoins to avoid potential risks. This call for stronger regulation comes as the US pushes for stablecoin laws that may further benefit US-based stablecoin issuers, potentially adding to competitive pressures on the euro.

The ECB president's comments underline the growing concerns over the risks posed by non-EU stablecoins operating in the EU. For instance, the EU provides a relatively safe environment for investors to redeem stablecoins during times of financial stress, but EU stablecoin reserves might not be sufficient to handle concentrated demand in case of a run.

Governments outside the EU, whose issuers jointly release stablecoins with EU entities, must take steps to strengthen regulation and implement robust equivalence arrangements to control the spread of stablecoins within the EU. This includes countries like the US and China to ensure that stablecoins are fully backed and risks such as mass redemptions of reserves within the EU are mitigated.

The MiCA framework does not fully address stablecoins jointly issued by EU and non-EU entities, according to Lagarde. In July, the US Congress passed legislation establishing a stablecoin regulatory framework, which could potentially strengthen the role of US-dollar-backed stablecoins in global markets.

Lagarde believes that the current regulatory landscape fails to account for the potential threats from such stablecoins. She underlined the need for robust equivalence regimes for stablecoin issuers outside the EU's MiCA framework. These equivalence regimes should ensure that EU investors can always redeem their holdings at par value.

Cipollone, an ECB official, also raised concerns about the growing dominance of the US dollar in cross-border payments. China has shown interest in a yuan-backed stablecoin, which could add to the competitive pressures on the euro.

As the digital currency landscape continues to develop, Lagarde's call for addressing regulatory gaps in non-EU stablecoins becomes more pressing. She emphasized the need for policymakers to step in to ensure these stablecoin issuers meet strict requirements before operating within the region.

Stablecoins issued outside the EU should face stricter regulatory oversight, advocates ECB President