Stablecoins Could Pose Major Risks to Monetary Policy, ECB Paper Warns

Widespread adoption of stablecoins would pose major risks to euro-area banks and the European Central Bank’s monetary sovereignty, particularly if linked to foreign currencies like the US dollar, an ECB working paper warned.

Rapid expansion could trigger a reallocation from retail bank deposits to digital assets and constrain lenders’ intermediation capacity, thereby also increasing uncertainty in the pass-through of policy rates to lending volumes, said the paper, which was published Tuesday.