Stablecoins Could Force ECB to Shift Rates: Official

• The ECB cautions that the monetary policy and the stability of the Eurozone market could be impacted by stablecoins.
• Stablecoins’ boost in the Eurozone may affect the ECB’s decision regarding rates.
• Liquidity stress from U.S. Treasury-backed tokens may force the ECB to take policy action.

Continued rise in the valuation and use of stablecoins could weaken the financial stability of the Eurozone. Thus, the European Central Bank may be forced to adjust its interest rates. This is the view of Olaf Sleijpen, the governor of the Dutch central bank. He also argued that a speedy sell-off of the assets that support stablecoins would disorient markets.

Stablecoin Surge Raises Risks for ECB

Sleijpen, in an interview with the Financial Times, also cautioned that banks exposed to stablecoins might become vulnerable to the other sector of the economy. According to him, this will force the ECB to reassess its monetary policy.

He observed that the total value of US dollar-based stablecoins has soared by nearly half this year, reaching up to $300 billion. Most of these tokens are backed by the US Treasuries, and a loss of confidence in them may be a great threat to the Eurozone.

Sleijpen admitted that a liquidity crunch would cause the sale of much government debt in the United States that it would also affect Europe. The ECB is now unsure whether such a crisis justify a reduction or an increase in interest rates. However, the official emphasized that holding a stablecoin in the Eurozone would require a reaction.

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Will a Stablecoin Shock Destabilize the ECB’s Control?

The ECB official argued that the size of US-dollar-associated stablecoins may render them systemically relevant. The financial system of the US can directly impact Europe in case policymakers do not intervene in time.

His statements resonate the concerns that Europe may encounter similar problems that have challenged emerging markets. There, overreliance on the US dollar destroyed their local monetary policy.

Sleijpen added that financial-stability tools must be activated initially in case of any crisis. These tools will be better-aligned to counter an unexpected loss of confidence in the digital assets. Nevertheless, he predicts the role of the central bank will increase in case there is panic in the markets.

Rate Path Uncertain as Risks Loom

The use of interest rate policy would depend on the severity of the shock and its impact on inflation and economic conditions in the Eurozone. The ECB has held interest rates steady for five months after cutting them eight times earlier this year.

Investors currently see only a small chance of another cut by the end of 2026. That forecast could change quickly if stablecoin risks develop into a broader threat.

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