BRUSSELS, April 22. /TASS/. The European Central Bank (ECB) believes that US President Donald Trump’s lavish support for the American crypto sector risks causing financial "contagion" that could blow up the European economy, according to a policy paper seen by Politico.
Its authors question whether landmark rules to govern crypto currencies in the European Union (EU) are strong enough. This refers to the Markets in Crypto Asset Regulation (MiCA), a landmark law passed in 2023 and heralded as the first regulation worldwide to introduce strong safeguards and consumer protections for cryptocurrency firms. However, ECB analysts are demanding an urgent rewrite of laws brought fully into force only four months ago.
European officials fret that several major financial market reforms the US president has touted will "undermine efforts to become strategically independent" as the EU tries to revamp its financial sector, the newspaper said. They also do not rule out that the initiatives could result in a flight of assets to the US and entrench fresh risks in the system.
At the heart of the recent scuffle in the EU, particularly between the European Commission and the ECB, is anxiety regarding a popular kind of a cryptocurrency known as a "stablecoin," which emulates the stability of major currencies like dollars and euros, unlike more volatile cryptocurrencies like Bitcoin, Politico wrote. The majority of these stablecoins are denominated in dollars, and in some countries are already used as an easily accessible alternative to the greenback when local currencies are unreliable.
Governments fear they could replace traditional money, undermining national sovereignty and leaving citizens vulnerable to the fortunes of a business with a penchant for disastrous meltdown, the paper said. The planned reforms in the US, including a White House executive order and the drafting of two laws - dubbed STABLE and GENIUS - extend the reach of the American stablecoin industry, with one analysis by British bank Standard and Chartered predicting the supply of dollar-backed tokens could hit $2 trillion by 2028, up from $240 billion today.
Stablecoins denominated in dollars, which are backed primarily by US treasuries, account for 99% of the $240 billion market, according to Frankfurt, the newspaper wrote. The central bank fears that allowing dollar-backed stablecoin issuers to offer their product in both the US and the EU could also favor "existing non-EU stablecoin issuers who have already established an oligopolistic market position," and could trigger a flood of EU investment in US debt, undermining the bloc's plans to strengthen its own financial market, the publication said.