Key Takeaways
- The European Commission plans to relax MiCA rules, allowing non-approved stablecoins to be interchangeable with EU-certified tokens.
- The European Central Bank (ECB) had opposed the said rules, favoring a digital euro CBDC to address risks to European bank stability.
- Several European companies have already devised ways to circumvent the stringent MiCA rules, raising concerns about the subcontinent’s role in the global cryptocurrency market.
The European Commission is planning to slightly relax MiCA rules, allowing the use of stablecoins both within and outside its territory to be treated equally.
According to a report from Reuters, the new proposed rules aim to make non-approved stablecoins in global markets interchangeable with certified EU-only ones. As a result, the licensing process for issuing stablecoins won’t be as stringent as had been earlier envisaged under MiCA rules.
ECB President Opposes Stablecoin Use
The decision to slightly relax MiCA rules comes amid growing internal opposition, especially from the European Central Bank, which has issued warnings on potential risks to financial stability. Nonetheless, the Commission is set to disregard the ECB’s warning and proceed with its decision and is expected to release the guidance soon.
The Commission is expected to make a formal announcement proposing that stablecoins issued outside the European Union be treated as interchangeable with the same-branded versions allowed only on EU markets. Earlier this week, ECB President Christine Lagarde, while addressing the European Parliament, opposed the plans to enable stablecoins. According to the report, she stated:
“Stablecoins pose risks for monetary policy and financial stability [and] must therefore be governed by sound rules, especially when they operate across international borders.”
Europe’s Fading Relevance
The guidance expected from the European Commission is expected to address legal concerns raised by France’s banking supervisor earlier this year. Market participants anticipate that the plan to relax MiCA rules will streamline compliance. It may not matter if the ECB opposes the existing restrictions, as available data indicate that some companies have still found ways to circumvent them. Moreover, recent policy positions held by the ECB underscore Europe’s declining relevance in the global cryptocurrency market.
Allow Interoperability across Jurisdictions
Stablecoin issuers are required to hold reserves at EU banks and provide redemption to users converting tokens back to fiat. While the new guidance will not alter this requirement, it is expected to facilitate interoperability across jurisdictions. This decision intends to close regulations that hinder the cross-border transaction of stablecoin. An anonymous European Commission spokesperson speaking to Reuters disputed its claims about MiCA and stablecoin risks:
“A run on a well-governed and fully collateralized stablecoin is improbable. Even if it was to happen, foreign holders would redeem their tokens in the US [or other countries] where the majority of the tokens circulate and the majority of the reserves are held.” Reuters.
Conclusion
While the ECB has raised concerns about the flow of cross-border redemption, the European Commission insists that existing reserve rules provide adequate safeguards. The decision to relax MiCA rules may bring relief to stablecoin users across the European Union, as stablecoins approved in lax jurisdictions, such as Malta, will soon be interchangeable with those from elsewhere.
Frequently Asked Questions
What are the rules for stablecoins under MiCA?
MiCA, the EU’s new crypto framework, imposes strict regulations on stablecoins. Stablecoin issuers must maintain full reserves, undergo regular audits, and secure EU approval. USDC and EURC are MiCA-compliant, while USDT (Tether) is not.
Why is USDT not compliant with MiCA?
MiCA requires Tether to shift focus and invest heavily in meeting EU-specific standards. That’s something the company says it’s not willing to do, not at the expense of the markets it sees as most in need of financial tools like USDT.
What are the different types of stablecoins?
There are four primary stablecoin types, identifiable by their underlying collateral structure: fiat-backed, crypto-backed, commodity-backed, and algorithmic stablecoins.
