The rules are unclear, leaving uncertainty for EU regulators and firms like Circle and Paxos.
The ECB is gaining support for a ban on stablecoins issued jointly within the bloc and other jurisdictions, setting the stage for a clash over how operators like Circle Internet Group Inc. and Paxos Inc. manage their activities across borders.
The European Systemic Risk Board, tasked with guarding Europe’s financial system, last week passed a recommendation to ban so-called multi-issuance stablecoins, according to people familiar with the discussions, who asked not to be identified while discussing non-public information.
While the ESRB’s guidance, approved by a board of central bank governors and EU officials, is not legally binding, it is expected to pressure authorities to either adopt the restrictions or justify how financial stability could be maintained without them.
Stablecoins are cryptocurrencies that are pegged to the value of a specific asset, such as the US dollar, and are typically backed by a corresponding reserve of cash. In the case of the multi-issuance model, Licensed providers that issue tokens in the EU should have a local reserve established in at least one member state, and should also manage reserves for identical Tokens issued outside that member state.
The ECB, headed by President Christine Lagarde, who chairs the ESRB’s general board, was a vocal proponent of the proposed ban and secured support from EU officials and regulators to proceed. The ESRB also identified possible alternative mechanisms to safeguard multi-issuance stablecoin arrangements in the EU, which were considered less effective.ESRB and ECB spokespersons declined to comment on the matter.
The implications for stablecoin firms already licensed under the multi-issuance model, including Paxos and Circle, remain unclear. Finland’s markets authority, which oversees Paxos, and France’s L’Autorité de contrôle prudentiel et de résolution, which oversees Circle, also declined to comment.
Both companies operate primarily out of the United States, whose crypto-friendly regulatory environment has raised concerns among European regulators. The bulk of their reserves is invested in dollar-denominated cash and cash-equivalent assets, including short-term US government debt. Circle and Paxos spokespeople declined to comment, though some sources noted the European Commission’s prior support for the multi-issuance approach.
The ECB has been exploring a central bank digital currency (CBDC) tied to the euro since 2021, but awaits a legal framework to proceed. Officials have repeatedly expressed concerns that dollar-backed stablecoins could pose a threat to financial stability and monetary sovereignty in the European Union. Lagarde previously warned that foreign holders of a stablecoin could pose “significant legal, operational, liquidity and financial stability risks at the EU level.”
In a presentation in April, the ECB stated that reserves held by third-country issuers were likely invested outside the EU in dollar-denominated assets, which would undermine its agenda for a Savings and Investment Union. The Bank of Italy, earlier this month, urged the European Commission to define the legal status of cross-border stablecoins.
The ECB doesn’t police the regulations that apply to these assets in the EU. The European Commission has so far avoided adopting an official position on the matter.
Judith Arnal, board member at the Bank of Spain, wrote earlier this month that the debate over multi-issuance stablecoins “exposes a deeper challenge for MiCA’s credibility as a global benchmark.” She warned that a regulatory framework disputed between the ECB, the Commission, and the European Parliament “risks sending the wrong signal internationally, namely that MiCA is fragile and subject to diverging interpretations.”
The European Commission, a member of the ESRB, did not respond to requests for comment.
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