Italy and Germany have proposed the creation of a European-level regulatory framework on stablecoins – that is, digital currencies with stable value, usually pegged to the US dollar or another fiat currency – which could lead to the exclusion of foreign operators, mainly American.
The Italy-Germany proposal is contained in a joint discussion paper reviewed by Euronews. It essentially provides for the exclusion from the European market of foreign stablecoin issuing companies if the regulations of their countries of origin are not equivalent to those of the European Union. The proposal aims to protect “the stability and sovereignty” of the European Union: it is therefore not merely a financial maneuver, but also geopolitical.
GEOPOLITICS OF STABLECOINS
To date, the most popular stablecoins are those based on the US dollar, such as Tether’s USDT. The think tank Atlantic Council has written that “stablecoins have become the latest manifestation of geopolitical competition”: the United States believes that the spread of these digital currencies will strengthen the status of the dollar as a global reserve currency, expand the use of the dollar in the economy, and stimulate demand for US Treasury bonds (the so-called Treasury). For other countries, therefore, there is a risk that this kind of “digital dollarization” could translate into a loss of monetary sovereignty.
– Also read: Dollar-based stablecoins are the latest geopolitical weapon of the US
WHAT THE ITALY-GERMANY PROPOSAL PROVIDES
The central point of the Italy-Germany regulatory proposal concerns the so-called multi-issuer stablecoins, that is, digital currencies issued simultaneously in multiple countries, distributing reserves among various jurisdictions.
Rome and Berlin want to prevent a specific risk: namely, that if all European holders of these “cross-border” stablecoins requested redemption at the same time, the share of reserves held in the European Union would not be sufficient to meet their demands. The problem is not the lack of funds, but their location: since part of the reserves is held abroad, they could be subject to different regulations that might delay their transfer to Europe, or even prevent it.
– Also read: What the EU risks with Trump’s stablecoins according to ECB, Bank of Italy and Consob
THE KILL SWITCH
To prevent such a scenario, Italy and Germany want to introduce a legal obligation for the instant transfer within the European Union of funds held abroad: more precisely, the document states that the reserves of multi-issuer stablecoins “can be reallocated and effectively mobilized from overseas to the Union without legal or operational obstacles in case of localized liquidity shortages, even during periods of crisis or financial stress.”
Otherwise, the European Banking Authority (EBA) will be equipped with a kill switch: it will be able to ban stablecoins that do not meet these requirements.
– Also read: Cryptocurrencies, what EU financial authorities and the Bank of England say
AN ATTACK ON AMERICAN STABLECOINS?
The Italy-Germany proposal is effectively an attack on American stablecoin companies, which dominate the market. Since the regulatory context in the United States differs from that of the European Union, if the document drafted by the two countries were accepted by Brussels, American stablecoins might no longer have access to the European market.
