The European Central Bank has published research into the impact of stablecoins. While the three high level findings were predictable, several details are notable. First, the researchers found that increased adoption of stablecoins can result in reduced bank deposits and a knock-on effect on bank lending. Secondly, stablecoin adoption impacts monetary policy transmission, specifically the degree to which changes in interest rates are passed on.
The third point is the impact of foreign currency stablecoin adoption on monetary sovereignty. Here, the obvious takeaway is that it could impact the transmission of EU monetary policy. If banks hold less euros and more dollars, that makes sense. And it also imports the effect of foreign monetary policy.
There’s a far more provocative monetary sovereignty takeaway, which we must emphasize is only made deep in an appendix: EU funds could end up financing the US via US Treasuries rather than financing EU states. This hits all the harder given the EU’s desire to finance the green transition and increased defense spending.
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