Stablecoins May Pose Major Monetary-Policy Risks: ECB Paper (1)

Widespread adoption of stablecoins would pose major risks to euro-area banks and the European Central Bank’s monetary sovereignty, particularly if linked to foreign currencies like the US dollar, an ECB working paper warned.

Rapid expansion could trigger a reallocation from retail bank deposits to digital assets and constrain lenders’ intermediation capacity, thereby also increasing uncertainty in the pass-through of policy rates to lending volumes, said the paper, which was published Tuesday.

The effects would be even more significant if a developed stablecoin market were dominated by non-euro-denominated instruments, authors Carlo Altavilla, Miguel Boucinha, Lorenzo Burlon, Ramon Adalid, Roberta Fortes ...