The U.S. and the EU have different approaches to cryptocurrencies, including stablecoins. Whereas the U.S. has banned a Central Bank Digital Currency (CBDC) and is going to allow unregulated private issuance of stablecoins, the EU is developing its own CBDC and wants to regulate cryptos. However, as the outgoing head regulator of the Italian stock market Paolo Savona has warned, the EU regulation is not effective, and is even an incentive to crypto proliferation. The worm lies in the blockchain system itself, Savona warned, which is “opaque.”
The Basel-based Bank for International Settlements issued a stark warning on stablecoins and pushed a solution that seems to follow EU guidelines, calling for a “unified ledger incorporating central bank money, commercial bank deposits and government bonds.” “Stablecoins as a form of sound money fall short, and without regulation pose a risk to financial stability and monetary sovereignty,” the BIS said in an early-released chapter of its annual report due to be published on June 29.
BIS Economic Adviser and Head of the Monetary and Economic Department Hyun Song Shin explained that stablecoins lack the traditional settlement function provided by a central bank with fiat money. “Stablecoin holdings are tagged with the name of the issuer, much like private banknotes circulating in the 19th-century Free Banking era in the United States,” he stated accurately. As such, stablecoins often trade at varying exchange rates, undermining singleness. It means they can often trade at varying exchange rates depending on the issuer, undermining the no-questions-asked principle of central bank-issued money. “Singleness is either you have it or you don’t,” Shin said, also warning of the risk of “fire sales” of the assets backing stablecoins if they collapse, as TerraUSD (UST) and the cryptocurrency LUNA did in 2022.
