One of the most unpopular aspects of Europe’s MiCA regulation is the requirement that stablecoin issuers deposit 30% of reserves with banks, rising to 60% for systemic issuers. The European System of Central Banks (ESCB) says it wants this requirement dropped, as part of its response to the European Commission’s consultation on MiCA revisions. It also weighed in on the topic of multi- jurisdiction stablecoins, which involve a token issued both from within the EU and outside the EU. Its preference is for a ban, meaning a USDC issued in Europe would be a separate token from a USDC issued in the United States. But the ESCB also provided views on alternative pathways.
Regarding bank deposits, the central banks acknowledge that parking cash at commercial banks reduces the revenue potential for stablecoin issuers. But their main motivation to drop the rule is they believe that deposits increase the linkage between the banking system and stablecoins, which is undesirable for financial stability reasons. Instead they want a requirement for a certain proportion of stablecoin reserves to be available in one to five working days. That could be achieved through reverse repo, where issuers lend cash in exchange for collateral, or by investing in short maturity securities. In the early days of stablecoin discussions in 2019, the ECB raised concerns that stablecoin issuers could make up a large proportion of demand for short term debt. Perhaps what’s changed is the supply side, with governments needing to raise more funds, especially proposals for joint EU borrowing to fund defense.
Previous assessments of the impact of stablecoins on banks have noted that money shifts from retail to wholesale deposits. If the bank deposit requirement is dropped, money would flow out of the banking system, although the ESCB notes the funds may partially flow back.
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