- The European Central Bank is concerned about US crypto reforms, saying that it could lead to financial instability in Europe.
- Amid these growing concerns, the European Commission rejected the warnings.
The European Central Bank (ECB) warned of a probable repercussion from excessive US support for the crypto industry. As per the Bank, an increase in dollar-backed stablecoins could lead to the destabilization of the financial system of Europe.
The expansion of dollar-backed stablecoins is to expand the overall reach of the dollar through the use of financial technology.
The ECB also requested to revise the regulatory framework of the Markets in Crypto-Assets Regulation (MiCA) for cryptocurrencies. The concern revolves around overloading European markets with dollar-denominated stablecoins due to US reforms.
The central bank is also concerned that this step could lead to a lot of European funds flowing into US assets. If this happens, it will eventually expose banks to liquidity risks.
EU Officials Defend MiCA Framework
Amid these growing concerns, the European Commission rejected the warnings. An EU official states that the current MiCA framework is strong enough to manage stablecoin risks regardless of the US policies.
The policies mentioned were the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) and the Guiding and Establishing National Innovation for US Stablecoins (GENUIS). Both bills focus on expanding the crypto footprint of the United States.
The ECB further warned that the issuers of Europe could cross paths with redemption pressures from the EU as well as foreign holders without tighter restrictions. This will also ignite a financial run and damage exposed institutions.
On this matter, the co-founder and chief executive officer at Trading Strategy, Mikko Ohtamaa, posted on X saying that the worry is warranted. And, the European Union had the first mover advantage with the regulation, but they slipped up.
He further mentioned that no EU stablecoin is in the race over the globe because of the restrictive rules of MiCA, which are influenced by bank and legacy finance lobbying.
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