In a working paper published on Tuesday 3 March, experts from the European Central Bank (ECB) warned of the risks of banking disintermediation and disruption to monetary policy if the use of stablecoins, private cryptocurrencies with a stable value, were to increase in the euro area.
They point out that increasing use of these digital assets could encourage households and businesses to shift some of their funds from traditional bank deposits to stablecoins, at the risk of reducing banks’ ability to finance the real economy.
According to researchers at the Frankfurt Institute, a shift in bank deposits is also likely to disrupt the transmission of monetary policy. “In the euro area, banks play a central role in transmitting interest rate changes to households and firms. When deposits shift into stablecoins, this transmission mechanism changes”, they conclude.
The authors also highlight the risks to monetary policy of increased use of stablecoins denominated in non-European currencies, such as Tether, USD Coin and DAI, all of which are backed by the US dollar and account for the overwhelming majority of the market for this type of cryptocurrency.
“Foreign monetary conditions could be ‘imported’ into the euro area through stablecoins. This would weaken the central bank’s control over financial conditions, reduce the effectiveness of traditional monetary policy instruments, and make it harder to stabilise inflation and economic activity, especially during periods of financial stress”.
See the ECB experts’ working paper: https://aeur.eu/f/l0w (Original version in French by Bernard Denuit)