The European Central Bank, in a new working paper, examined the impact of the rapid growth of stablecoins on the stability of the eurozone banking system. Analysts emphasize that the rising popularity of digital assets could lead to a significant reduction in traditional bank deposits.
This is reported by Business • Media
Stablecoins and Lending: Changes for the Banking Model
The report highlights that the outflow of funds from deposits to stablecoins, particularly among households and companies, may limit the availability of bank lending to the real sector. Banks, for their part, will be forced to rely more frequently on more expensive market financing to support their operations.
Additionally, the spread of stablecoins can influence the mechanisms of monetary policy transmission. The growth of this asset class reduces the predictability of banks’ responses to the regulator’s interest rate decisions, complicating the effectiveness of monetary management.
Currency Structure of the Market and Dollar Dominance
The authors of the document paid special attention to the currency structure of the stablecoin market. According to their analysis, about 97% of all stablecoins are denominated in US dollars. This dominance, in the ECB’s view, creates additional risks for the monetary sovereignty of the eurozone and may indicate a weakening of the influence of the region’s internal policy.
“As the use of stablecoins increases, some funds may leave traditional bank deposits.”
The ECB document describes the so-called deposit substitution effect, where users transfer savings from bank accounts to digital wallets. This reduces the volume of traditional deposits and directly impacts banks’ ability to finance the economy.
It is noted that this impact depends on the scale of stablecoin adoption, their architecture, and the existing regulatory environment. Estimates suggest that the market capitalization of stablecoins has exceeded $300 billion in three years and could reach $2 trillion by 2028.
Despite the absence of direct regulatory initiatives in the document, the ECB emphasizes the need for ongoing monitoring and analysis of the risks associated with the integration of stablecoins into the eurozone’s financial system.
Thus, the rapid adoption of stablecoins in the European economy requires increased attention from regulators to ensure the stability of the banking system and maintain the effectiveness of monetary policy.