Trump’s crypto policy triggers dispute between ECB and EU Commission
By Alexander Bechtel
The ECB and the European Commission are wrestling over the future of stablecoin regulation. It is also about the digital euro – and whether Europe is promoting innovation or slowing itself down in the race for digital sovereignty.
The European Central Bank (ECB) and the European Commission are not known for discussing financial policy issues with each other in public. However, this is exactly what has happened in recent weeks. At the center of the debate is the future of the regulation of stablecoins in the European Union. As “Politico” reports, the main question is whether the EU Regulation on Markets in Crypto Assets (MiCAR) is sufficient to protect the European financial system from a potential onslaught of US-backed stablecoins.
The ECB is concerned that the current regulatory measures may not be sufficient to address the expansion of the dollar stablecoin sector announced by Donald Trump. According to a recent report by the Citi-Institut, the international supply of stablecoins could grow from around 240 billion US dollars at present to 1.6 trillion US dollars by 2030. Experts agree that dollar stablecoins will continue to hold the largest market share.
In recent strategy papers and public statements, leading representatives of the ECB warned that an influx of dollar-based stablecoins could destabilize the European economy, weaken the euro and divert European capital into the American financial system.
Against this backdrop, the ECB is calling for a swift revision of MiCAR – the regulation that only came into force at the beginning of the year and is considered the world’s first comprehensive set of rules for the crypto sector. The central bank considers the current provisions to be too lax, particularly with regard to the so-called “multi-issuance” model. This model would allow a stablecoin to be issued by several companies in different countries – a possible way of circumventing regulatory controls in the EU in the ECB’s view.
EU Commission: “No MiCAR revision based on hypothetical scenarios”
The European Commission, on the other hand, disagrees with the ECB’s cautionary tone. In a rare public criticism, Commission representatives accused the ECB of misunderstanding the protective mechanisms of MiCAR and exaggerating the risks posed by stablecoins. The current regulations already contain robust precautions: It regulates who is allowed to issue stablecoins, sets upper limits for their circulation and gives the ECB the option of blocking issuers if they threaten monetary policy or financial stability.
The Commission also argues that it is premature to revise MiCAR on the basis of hypothetical scenarios. The majority of EU member states also support this view and reject a premature revision of the recently adopted rules. The Commission points out that the enforcement of the existing rules is already having an effect: large stablecoins such as Tether have been removed from European trading platforms.
The dispute between the ECB and the Commission comes at a time when the ECB is pursuing ambitious plans for the introduction of a digital euro – a central bank digital currency (CBDC) that is intended to supplement cash and strengthen European sovereignty in payment transactions. Critics therefore also see self-interest in the ECB’s intensified rhetoric: it wants to gain political support for the digital euro by emphasizing the dangers of unregulated stablecoins.
The Commission’s contradiction opens up a new perspective: Europe would do well to counter the American stablecoin offensive with its own innovative solutions instead of relying exclusively on bans. In the spirit of defending European sovereignty through innovation instead of prohibition.
There is nothing to be said against positioning the digital euro as part of the answer. However, the ECB’s critical stance towards stablecoins is increasingly being met with resistance, as it is also affecting European stablecoin projects. Thanks to MiCAR and the classification as an e-money token, these projects are now operating within a clear regulatory framework.
A genuine public-private partnership – as called for by ECB Executive Board member Piero Cipollone at the beginning of April in connection with the digital euro – should also include the fair treatment of European stablecoins. A sole focus on a central banke digital currency, which will probably not be ready for the market for several years, carries the risk that Europe will lose the battle for sovereignty in payment transactions and the international role of the euro before it has really begun.
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This article was originally published in Frankfurter Allgemeine Zeitung (FAZ) in German. For the original version, click here.
Disclaimer: The contents of the article reflect the private opinions of the author and not necessarily those of DWS.