European Central Bank report warns: Stablecoins may pose significant risks to monetary policy

According to a report by Bloomberg, a working paper from the European Central Bank warns that the widespread adoption of stablecoins poses significant risks to the banking sector in the eurozone and the monetary policy sovereignty of the European Central Bank, particularly for stablecoins pegged to foreign currencies like the US dollar.

The paper points out that the rapid expansion of stablecoins could trigger a reallocation of retail bank deposits towards digital assets, constraining banks' ability to act as credit intermediaries and increasing uncertainty in the transmission of policy rates to loan volumes. If a mature stablecoin market is dominated by non-euro-denominated instruments, the risks will be further amplified. The President of the Dutch Central Bank stated that stablecoins, due to their reserve management methods, could pose risks to the core of the financial system. The President of the German Central Bank had previously praised euro-denominated stablecoins for payments.