Germany and Italy have proposed establishing a European Union regulatory framework for stablecoins to strengthen financial market safeguards, moving the debate from a technical to a political level.
These countries are pushing for sweeping new powers to block foreign issuers of such cryptocurrencies from the European Union unless their home states meet EU regulatory standards, a move that could shut some of the biggest crypto companies out of one of the world’s largest financial markets, according to a document seen by Euronews.
Stablecoins, i.e. stable cryptocurrencies, are designed to maintain a fixed value, usually tied to the dollar or euro, and are backed by real money held in reserves so that owners can convert at any time.
“In order to ensure the stability and sovereignty of the EU financial system, it is necessary to establish a comprehensive and harmonized regulatory framework for global stablecoins from multiple issuing systems from third countries,” the document states.
Although the document does not name specific companies, the described structure clearly points to the existing models of large stablecoins pegged to the dollar, most of which are located in the US.
According to the proposal, any such issuer would be prohibited from offering tokens in the EU, unless the European Commission formally determines that the regulatory framework of its home country is in line with Union standards, reports Bankar me.
Otherwise, it would be barred from the market, which, given that the US does not currently have a comparable regulatory framework, could lead to the complete exclusion of major dollar-pegged stablecoins from the EU market.
According to the draft, the European Banking Authority (EBA) would be obliged to ban a certain stablecoin entirely if the reserve transfer mechanism fails, if the issuer seriously violates the rules of its home country, or if there is evidence that it is acting against the interests of token holders in the EU.
The risk additionally arises from the fact that the reserves covering stablecoins are often divided between different jurisdictions, primarily American and European.
In the event that EU holders attempt to cash out their tokens at the same time, the reserve fund may not be sufficient to pay all claims. The funds formally exist but are held in US accounts, which means they may be subject to US rules and potential restrictions, which could delay or prevent their transfer to Europe.
