ECB: “Spread of stablecoins could shrink bank lending… may weaken the effectiveness of interest-rate policy”
Summary
- The ECB warned that the spread of stablecoins could lead to a decline in bank deposits and a contraction in corporate lending, weakening the effectiveness of interest-rate policy.
- The ECB said that if foreign-currency-denominated stablecoins, particularly dollar-pegged stablecoins, dominate the market, the impact of euro zone interest-rate policy on bank lending could weaken further.
- The ECB said the stablecoin market has more than doubled over the past three years and could reach $2 trillion by 2028, adding that it will continue to monitor the implications for financial stability and the role of the euro.
Forecast Trend Report by Period
The European Central Bank (ECB) warned that the growing use of stablecoins could lead to declines in bank deposits and a contraction in corporate lending, potentially weakening the effectiveness of interest-rate policy.
According to Cointelegraph, a media outlet specializing in virtual assets (cryptocurrencies), the ECB said in a staff report released on the 3rd that “if stablecoin adoption expands, households and companies may increasingly hold digital assets instead of bank deposits.”
The report noted that “rising interest in stablecoins is linked to a decline in retail bank deposits and a reduction in corporate lending,” adding that “banks could reduce the amount of credit they supply to the real economy.”
Banks rely heavily on stable, low-cost deposits as a funding source for household and corporate loans. If deposits decline, banks become more dependent on wholesale funding or market-based financing, which is generally more expensive and more volatile.
The ECB said such shifts could weaken the transmission of central-bank interest-rate policy. Even if rates are adjusted, the impact may not be sufficiently passed through to bank lending and the real economy.
However, it said the magnitude of the impact may vary depending on the scale and structure of stablecoin adoption and the regulatory approach, and could display “non-linear” characteristics whereby the effect rises sharply once adoption exceeds a certain threshold.
The report also raised concerns about the spread of foreign-currency-denominated stablecoins. If dollar-based or other non-euro tokens come to dominate the market, the influence of euro zone interest-rate policy on bank lending could weaken further.
According to the outlet, dollar-pegged stablecoins account for about 97% of the total stablecoin market capitalization, with the market size at roughly $301 billion. The ECB projected that the stablecoin market has more than doubled over the past three years and could reach $2 trillion by 2028.
The ECB said it would “continue to monitor the impact of the spread of stablecoins on financial stability and the role of the euro.”
Minseung Kang
minriver@bloomingbit.ioBlockchain journalist | Writer of Trade Now & Altcoin Now, must-read content for investors.
