The European Central Bank is rallying support for a ban on stablecoins issued both within the EU and abroad.
According to Bloomberg, the ECB is consolidating backing for a prohibition on stablecoins simultaneously issued inside the European Union and in other jurisdictions. The move sets the stage for a potential regulatory clash over how companies such as Circle Internet Group Inc. and Paxos Inc. will manage their cross-border operations.
The ESRB recommendation
The European Systemic Risk Board (ESRB), the body tasked with overseeing the stability of the EU’s financial system, approved a recommendation last week to prohibit so-called multi-issuance stablecoins.
Although the ESRB’s position, ratified by a board of central bank governors and EU officials, has no binding legal effect, it is expected to exert pressure on regulators. They will either have to adopt the proposed restrictions or provide compelling arguments on how to preserve financial stability without them.
What are multi-issuance stablecoins?
Under the multi-issuance model, authorized providers issuing stablecoins in the EU would need to establish a local reserve in at least one member state, while simultaneously managing reserves for identical stablecoins issued outside the bloc.
The ECB, led by President Christine Lagarde who also chairs the ESRB’s General Board, has emerged as a strong supporter of the ban, securing the backing of EU officials and regulators. The body also identified possible alternative mechanisms to safeguard multi-issuance stablecoin arrangements in the EU, but deemed them less effective.
Implications for Circle, Paxos and others
The consequences for companies already licensed under the multi-issuance model, including Paxos and Circle, remain uncertain. The Finnish financial authority, which supervises Paxos, and France’s Autorité de contrôle prudentiel et de résolution (ACPR), which oversees Circle, both declined to comment.
Both companies operate primarily out of the United States, where a more favorable regulatory environment has raised concerns among European regulators. Most of their reserves are held in U.S. dollars and equivalent assets, including short-term U.S. government debt. Spokespeople for Circle and Paxos declined to comment.
ECB concerns over dollar-pegged stablecoins
The ECB has been studying a euro-based CBDC since 2021 but is still awaiting a regulatory framework to proceed. Officials have repeatedly expressed concern that dollar-backed stablecoins could pose a threat to EU financial stability and monetary sovereignty.
Lagarde previously warned that foreign holders of stablecoins could create “significant legal, operational, liquidity, and financial stability risks at the EU level.” In an April presentation, the ECB stated that reserves held by non-EU issuers would likely be invested outside the bloc in dollar-denominated assets.
The regulatory debate
The Bank of Italy recently urged the European Commission to clarify the legal status of cross-border stablecoins. The ECB does not directly control the rules governing these assets within the EU, while the European Commission has so far refrained from taking an official stance on the issue.
Judith Arnal, a board member of the Bank of Spain, wrote earlier this month that the debate over multi-issuance stablecoins “exposes a deeper challenge for MiCA’s credibility as a global benchmark.” She warned that a contested regulatory framework among the ECB, the Commission, and the European Parliament “risks sending the wrong signal internationally, namely that MiCA is fragile and subject to diverging interpretations.”
