- A study published by the ECB examines how stablecoins influence the Eurozone banking sector and its monetary policy management.
- The authors, who do not represent the official ECB position, come to the conclusion that stablecoins in the Eurozone are, above all, a powerful destructive force.
The Study “Stablecoins and monetary policy transmission” describes how stablecoins are increasingly being used as a replacement for traditional bank deposits. However, if such funds from sight and time deposits are exchanged for digital tokens, banks lose a central, cost-effective source of refinancing.
Instead, there is increasing reliance on short-term market financing, which is more expensive and volatile. This changes the balance sheet structure of banks and affects one of their main functions: lending.
The authors emphasize that this effect becomes stronger as stablecoins become more widespread. While their current market capitalization is still comparatively small, an increasing stablecoin presence in the euro area could noticeably worsen the stability of the banking sector and reduce the importance of traditional deposits.
Impact on monetary policy control
Monetary policy in the euro area depends largely on the banks’ reaction to changes in key interest rates. However, as banks hold fewer deposits and their funding costs become more dependent on market conditions, the impact of monetary policy stimulus becomes less predictable.
Banks cannot increase deposit rates arbitrarily without risking further outflows into stablecoins. At the same time, their refinancing costs react more quickly to changes in interest rates, which weakens the impact of monetary policy measures.
The ECB sees this as a risk to the effectiveness of its steering instruments, particularly in phases of increased uncertainty. The authors argue that growing stablecoin usage not only weakens monetary policy control, but also makes it more complex.
Influence of US monetary policy through dollar stablecoins
Another key finding concerns the dominance of dollar stablecoins, which account for 99% of the global stablecoin market capitalization. If these tokens are widely used in the euro area, interest rate changes by the US Federal Reserve may indirectly affect European liquidity conditions.
The study warns that monetary policy sovereignty would be lost as a result. In extreme scenarios, capital flows into dollar stablecoins could negate or amplify the impact of European rate hikes, depending on global market movements and issuer behavior.
The authors see this as a structural risk that becomes more important as stablecoin usage increases.
Possible and impossible countermeasures
The authors derive several priorities from their results. This includes stricter requirements for the quality and transparency of stablecoin reserves, robust redemption mechanisms and close supervision of issuers.
In addition, the digital euro is being promoted as a counteroffer. It is intended to avoid the risks of stablecoins by providing a secure, digital form of central bank money.
What is crucial, however, is that regulatory countermeasures take effect early, before the impact of stablecoins reaches a level that structurally impairs monetary policy control.
In any case, you can’t count on the digital euro at the moment, because it will still have an existential disadvantage for at least a few months:
He doesn’t exist.
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