Stablecoins: The EU paves the way for banks

In the financial arena, cryptocurrencies and, in particular, stablecoins, are a force to consider. Recent projects by the European Commission could change this, making stablecoins more accessible to commercial banks in the European Union (EU). This is a new direction that would soften the current position of the European Parliament.

The European Union’s Counterbalance on Crypto-Regulation

The EU is adopting a general trend towards strict regulation of cryptocurrencies. This measure aims above all to prevent the turbulence of the crypto market from destabilizing the banking system.

Thus, a parliamentary plan foresees imposing a capital requirement on EU banks of 1 euro for each euro of crypto held. This equates to a risk weight of 1,250%.

However, a document from the European Commission, consulted by Coindesk, proposes a notable modification. He suggests reducing the weighting to 250% for any stablecoins linked to non-monetary assets, such as gold.

Stablecoins based on fiat currencies, such as the US dollar, would be treated as the underlying asset. This would apply unless adding additional credit or market risk.

The Commission Proposal and the MiCA Regulation

According to the leaked document, the European Commission’s proposal aligns with future regulations.

This is the Crypto-Asset Markets Regulation (MiCA), which will come into force in July 2024. This regulation provides for the obligation for issuers of stablecoins to hold appropriate reserves.

According to this plan, the banks will also have to effectively manage the risks associated with holding cryptocurrenciesincluding cybersecurity, money laundering and valuation issues.

Separately, some cryptocurrencies like bitcoin and Ether would retain the maximum risk weighting of 1,250%, according to the same document.

The future of EU banking and cryptocurrency is looming on the horizon, although many details remain to be worked out. The proactive attitude of the European Commission seems determined to encourage prudent adoption of stablecoins by banks.

It also intends to minimize the risks to financial stability. However, for these bills to become law, agreement with EU member states is neededwhich will require a series of negotiations.

Current moves in this area are promising and may mark the beginning of a new era in the EU financial system. Russia, once hostile to cryptocurrency, now manifests a more open policy. This marks the beginning of a global shift towards cryptocurrency adoption. Moreover, it highlights the urgency for the EU to maintain the pace of progress in this area.