The Dutch Central Bank has warned that a large-scale run on stablecoins could force the European Central Bank (ECB) to reconsider its interest rate framework. The warning highlights new financial stability risks in the euro area’s evolving digital economy.
Dutch Central Bank Concerns about Stablecoin Threat
Dutch central bank governor Olaf Sleijpen outlined the potential systemic impact of a significant wave of redemptions in the stablecoin market. If large numbers of users attempt to convert stablecoins to traditional fiat currency simultaneously, it would compel issuers to rapidly liquidate reserve assets such as government bonds.
This selloff could disrupt funding markets, increase volatility in bond prices, and exert downward pressure on traditional market liquidity.
With the stablecoin market now exceeding $300 billion in capitalization and dollar-pegged tokens up 48% this year, policymakers argue that a destabilizing event could spill over into the broader banking and payments systems.
A disorderly liquidation of stablecoin reserves might trigger higher borrowing costs. It may also reduce euro-area banks’ ability to access short-term funding, potentially undermining monetary transmission mechanisms.
Regulatory Outlook
If stablecoin instability undermines the effectiveness of current monetary measures, Sleijpen’s remarks highlight concerns that the ECB may need to respond with new policy instruments. The instruments include changing interest rates, offering liquidity assistance, or re-examining collateral regimes.
For central banks, this would be unprecedented. This would necessitate a quick reaction to preserve price stability and the robustness of the financial system.
A broader regulatory discussion on how to reduce the risks associated with digital asset markets includes a cautionary call. There are still concerns around cross-border risk, the concentration of reserves in dollar-denominated assets, and the potential pace of significant withdrawals. This is despite stablecoin issuers being protected by European crypto legislation, such as the Markets in Crypto-Assets (MiCA) framework.
Stronger cooperation on euro-based stablecoin offerings is being called for by central bankers. They also caution that an excessive dependence on U.S. dollar stablecoins may undermine European monetary sovereignty.
As the financial environment of the euro area becomes more digitalised, these cautions reaffirm themes from previous publications from the ECB and the Bank for International Settlements that emphasise the necessity of proactive regulatory adaptation.
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