Latest news with #monetarysovereignty
Finextra
2 days ago
- Business
- Finextra
Europe must provide more support for stablecoins or face subservience to the US dollar
Jürgen Schaaf, an economist and advisor to the European Central Bank's Market Infrastructure and Payments division, says more support should be provided for properly regulated euro-denominated stablecoins to ward off the threat posed by US dollar-backed tokens. 0 US dollar-based stablecoins currently account for some 99% of total stablecoin market capitalisation. In contrast, euro-denominated stablecoins remain marginal - with market capitalisation of less than €350 million. Their appeal lies in functioning as a blockchain-based money equivalent which is liquid, globally transferable, and perceived as a stable and solid store of value. Given their growing scale and complexity, stablecoins also present knotty challenges for financial stability, monetary sovereignty, the smooth functioning of payment systems and international policy coordination Stablecoins still remain dwarfed by 'conventional' financial assets. However, they are starting to come out of their niche and become more entangled with traditional financial institutions, creating potential threats to financial stability. Says Schaaf: "A disorderly collapse could reverberate across the financial system, and the risk of contagion is a growing concern for central banks." In its Annual Economic Report 2025, the Bank for International Settlements (BIS) issued a stark warning about stablecoins. Its concerns include the potential for stablecoins to undermine monetary sovereignty, transparency issues and the risk of capital flight from emerging economies. The BIS pointed out that many stablecoins have seen substantial deviations from par, highlighting the 'fragility of their peg'. The emergence of interest-bearing stablecoins also throws up more challenges, in that, if more business started using them, they could divert deposits from traditional banks, which could jeopardise financial intermediation and hamper credit availability. This would be a bigger issue in Europe, where banks play a central role in the financial system and deposits are their main source of refinancing. Should US dollar stablecoins become widely used in the euro area - whether for payments, savings or settlement - the ECB's control over monetary conditions could be weakened, warns Schaaf. "This encroachment, though gradual, could echo patterns observed in dollarised economies, especially if users seek perceived safety or yield advantages that are not available in euro-denominated instruments," he says. "Such dynamics would be difficult to reverse given the network character of stablecoins and the economies of scale in this context. The larger their footprint, the harder these would be to unwind. If the use of US dollar-denominated stablecoins continues to increase through traditional channels, they may compete directly with euro-based instruments in cross-border transactions. In tokenised settlement, where a reliable digital cash equivalent is key, US dollar stablecoins may cement their early dominance unless credible euro alternatives materialise." The US Administration has made it clear - through executive orders, congressional testimony and social media - that its support for stablecoins goes beyond just encouraging technological innovation. The goal is twofold: to protect the US dollar's global dominance by expanding its use on digital platforms worldwide; and to reduce borrowing costs by increasing demand for US Treasuries through stablecoin reserve holdings. If Europe is to come unscathed thropugh the maelstrom, policy makers must adapt their thinking and embrace the coming disruption, says Schaaf. "While the neutrality of public institutions is often preferred, a strategic blind spot in this space could prove costly," he says. "Euro-based stablecoins, if designed to high standards and effective risk mitigation, could serve legitimate market needs. They could also reinforce the international role of the euro." He contends that Europe's stable institutional framework and rules-based approach provide a solid foundation for mitigating the risks posed. "If the Eurosystem and the European Union can build on this advantage - through robust regulation, infrastructure investment and digital currency innovation - the euro could emerge from this period of change as a stronger currency.," he concludes"In a world of shifting sands, the euro has the potential to be the bedrock on which others can build."
Bloomberg
11-07-2025
- Business
- Bloomberg
Stablecoin Growth Presents New Risks for Regulators, BIS Says
The Bank for International Settlements warned that the rapid expansion of stablecoins — digital tokens usually pegged to fiat currencies — is creating new policy challenges for financial authorities, potentially placing monetary sovereignty in key markets under threat. Growth in both circulation and integration with traditional finance warrant closer regulatory scrutiny, the BIS said in a bulletin on Friday. It cited a doubling in stablecoins' overall market value to about $255 billion since 2023, with more than 90% of that value concentrated in two US dollar-pegged tokens.
Times
24-06-2025
- Business
- Times
Stablecoins threaten global financial stability, central banks warn
The growing use of stablecoins threatens global financial stability and the monetary sovereignty of countries, the Bank for International Settlements has warned, in a rebuke of US policy supporting the adoption of the digital assets. Known as the 'central bank of central banks', the BIS issued a pointed criticism of stablecoins, which are a form of digital currency pegged to traditional assets such as the dollar or commodities. It said stablecoins had 'some attributes of money' but warned that they 'perform poorly when assessed against the three tests for serving as the mainstay of the monetary system'. 'Stablecoins as a form of sound money fall short and without regulation pose a risk to financial stability and monetary sovereignty,' it said. The BIS's intervention comes after the US Senate passed a bill known as the 'Genius Act' that would create a legal framework for the digital assets and require them to be backed by liquid assets such as the dollar or US government bonds. The BIS said the main pitfall of stablecoins was their failure to meet the test of monetary 'singleness', where the value of one asset is always guaranteed as it is with dollars or the pound, which are underwritten by their issuing central banks. • Gerard Lyons: The dollar is declining, but what will replace it? Stablecoins are generally considered safer and less volatile than cryptocurrencies such as bitcoin but the sector was thrown into turmoil with the collapsing value of terraUSD in 2022. Terra, which was pegged one-to-one with the US dollar, had about $50 billion of its market capitalisation wiped out. As part of its latest annual report to be published this week, the BIS said: 'Society has a choice. The monetary system can transform into a next-generation system built on tried-and-tested foundations of trust and technologically superior, programmable infrastructures. 'Or society can re-learn the historical lessons about the limitations of unsound money, with real societal costs, by taking a detour involving private digital currencies. If stablecoins continue to grow they could pose financial stability risks, including the tail risk of fire sales of safe assets.' The BIS instead urged central banks to tokenise their currencies to counter the threat of stablecoins. The bank is working with seven big central banks — including the Bank of England, US Federal Reserve, Bank of France and Bank of Japan — and a number of commercial banks to help to create a network of tokenised central bank payments, known as Project Agora.
Zawya
24-06-2025
- Business
- Zawya
Central bank body BIS delivers stark stablecoin warning
The Bank for International Settlements issued its starkest warning yet on the risks posed by stablecoins and urged countries to move rapidly towards the tokenisation of their currencies. The BIS, often dubbed the central bankers' central bank, outlined its concerns, including stablecoins' potential to undermine monetary sovereignty, transparency issues and the risk of capital flight from emerging economies. It comes less than a week after the U.S. Senate passed a bill to create a regulatory framework for U.S.-dollar-pegged stablecoins, a move which, if rubberstamped by the House, is expected to fuel a further explosion in their popularity. Stablecoins are a type of cryptocurrency designed to maintain a constant value, usually a 1:1 dollar peg, backed by real-world assets such as U.S. Treasuries or gold. Dollar-pegged coins currently account for 99% of the market, which is estimated to have over $260 billion worth of coins in circulation. "Stablecoins as a form of sound money fall short, and without regulation pose a risk to financial stability and monetary sovereignty," BIS said in a early-released chapter of its annual report due to be published on Sunday. Hyun Song Shin, the BIS' Economic Adviser, explained that stablecoins lack the traditional settlement function provided by a central bank with fiat money. He likened them to private banknotes circulating in the 19th-century Free Banking era in the United States. It means they can often trade at varying exchange rates depending on the issuer, undermining the no-questions-asked principle of central bank-issued money. "Singleness is either you have it or you don't," Shin said, also warning of the risk of "fire sales" of the assets backing stablecoins if they collapse, as TerraUSD (UST) and the cryptocurrency LUNA did in 2022. There is also the concern around who controls stablecoins. Tether currently has more than half of the overall stablecoin market, but quit the EU following the introduction of new rules which require stablecoin operators to be licensed by the bloc. "The whole question of disclosure, this is where some of the stablecoins differ," BIS Deputy General Manager Andrea Maechler said. "You will always have the question about the quality of the asset backing. Is the money really there? Where is it?" BOLD ACTIONS The BIS wants central banks to go down the route of tokenised "unified ledger" incorporating central bank reserves, commercial bank deposits and government bonds. It would mean central bank money remains both the primary means of global payment and that currencies and bonds from around the world could effectively be integrated into the same "programmable platform". Tokenisation is aimed at creating a digitalised central bank system that settles payments and securities trades almost instantaneously and more cheaply by cutting the need for certain time consuming checks, as well opening up new functionality. It can also make the system more transparent, resilient and interoperable and may protect the system from some of the more unpredictable elements of cryptocurrencies. There would be a number of key issues to overcome, including who gets to set the rules governing the platform and that individual countries are likely to want to retain significant control of how and who uses their currencies. "Realising the full potential of the system requires bold action," the outgoing head of the BIS, Agustin Carstens, said.
