Regulating Crypto-Assets – Part I: Stablecoins (cepPolicyBrief COM_2020_593)
Stable cryptocurrencies, so-called stablecoins, are on the rise. Tech giant Facebook is planning to launch the stablecoin Diem with more than 20 companies such as Spotify and Uber. The company's own crypto-based payment system is expected to emerge this year. The EU is working to create a legal framework.
Unlike cryptocurrencies like Bitcoin, stablecoins are often pegged to an official currency like the dollar or the euro. "This gives them the potential to be subject to lower fluctuations in value and ultimately to be considered as a means of payment," says Philipp Eckhardt of the Centre for European Policy (cep).
Policymakers and regulators are alarmed. They fear nothing less than major risks to financial market stability and new threats to monetary policy. The EU Commission has therefore proposed a legal framework for the regulation of crypto-assets, including stablecoins, which is currently being negotiated in Brussels.
In a cepPolicyBrief of these proposals, cep welcomes the fact that the EU is aiming for legal certainty. However, according to Eckhardt, there is a threat of overregulation from Brussels. "The EU wants a lot of leeway to reject politically undesirable stablecoin projects. There must be follow-up action here, otherwise the innovative strength of the sector could be damaged," emphasizes the cep expert.