Central Banks Vetoing Stablecoins: Balancing Innovation and Financial Stability in the EU

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The European Banking Authority (EBA) chair, José Manuel Campa, has recently expressed the belief that central banks should have the right to veto stablecoins if they pose a threat to monetary policy, financial stability, or other policy objectives. This comes as Campa is gearing up to develop precise rules for implementing the European Union’s Markets in Crypto Assets (MiCA) regulation framework, which is expected to receive final approval from finance ministers shortly.

Stablecoins could play an increasingly essential role in the payments landscape, Campa acknowledged. However, he stressed that they must adhere to “sensible guardrails,” including compliance with anti-money laundering regulations. According to Campa, EU-based stablecoin issuers need to “ask for permission” and present their projects for assessment, primarily in light of concerns raised by US regulators.

Upon the completion of the MiCA approval process, all stablecoin issuers operating within the EU will be required to have a license and hold sufficient reserves. “All issuers will be subject to a robust authorization and also supervisory framework going forward,” Campa added. For larger projects, extra scrutiny will be applied, with the largest issuers subjected to “enhanced stress testing” of reserves. This thorough examination will also take into account governance, redemption agreements, and the conduct of business.

MiCA’s introduction marks a crucial step towards regulating all crypto-related activities within the EU, with a particular emphasis on the issuance of cryptocurrencies. The bill will also impose more stringent oversight on companies classified as crypto-asset service providers (CASPs), which include crypto exchanges, custody providers, investment advisors, stablecoin issuers, and other entities operating in the European market.

A noteworthy aspect of the MiCA framework is the provision for central banks to weigh in on proposals to issue new stablecoins, referred to as “asset-referenced tokens.” In cases where a token accounts for over one million transactions per day, the issuance will be halted. Many prominent businesses in the crypto industry, including the USDC issuer Circle, have stated their intentions to issue stablecoins under the MiCA regulation.

While some industry leaders praise the EU’s new MiCA regulation, it is essential to address both the potential benefits and drawbacks. MiCA can foster growth and transparency within the rapidly evolving crypto market, ensuring stablecoin issuers comply with vital regulations. However, ample consideration must be given to the role of central banks in the burgeoning stablecoin landscape, especially in light of their power to veto stablecoin introductions should they pose potential threats to the broader financial ecosystem.

Source: Cryptonews

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