The European Central Bank (ECB) seeks veto authority on the launch of stablecoins in the Eurozone, in addition to a greater supervisory role, according to a Reuters report.
Because stablecoins derive their value from official currencies, central bankers are especially wary of them. They fear this relationship could affect control over payments, banking, and the money supply.
The announcement comes in light of Facebook’s plans to launch a dollar-backed digital coin called Diem. The social network had originally planned to release a stablecoin called Libra. A basket of official currencies would have backed this, but regulatory backlash saw the project falter.
ECB Issues With Stablecoins
In September, the European Union (EU) intends to establish comprehensive rules for crypto-assets. These will likely include stress tests, as well as capital and liquidity requirements. Facebook would have to abide by these regulations before releasing any stablecoin.
The ECB said it should ultimately decide if a stablecoin could be allowed to launch in the Eurozone. This is due to the tokens’ potential to compromise the central bank’s control over inflation or the safety of payments. The ECB also suggested EU rules be changed to make its opinion on the matter binding for national authorities looking to issue stablecoins.
The central bank explained that:
“Where an asset-reference arrangement is tantamount to a payment system or scheme, the assessment of the potential threat to the conduct of monetary policy, and to the smooth operation of payment systems, should fall within the exclusive competence of the ECB”
STABLE Act for Stablecoins
Stablecoins face increasing regulatory pressure across the pond. In Dec. 2020, the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act was introduced in the U.S. Congress. It similarly dictates capital and liquidity requirements.
The legislation would require any issuer of a stablecoin to acquire a banking charter. The issuer would also require approval from the Federal Reserve (FED), the Federal Deposit Insurance Corporation (FDIC), and the appropriate banking agency six months before issuance. It would also need enough reserves at the FED to ensure on-demand conversion.
Although the legislation has not been passed, it could have devastating consequences for the future of stablecoins.