FRANKFURT (Reuters) -European Union legislators should demand safeguards and robust equivalence regimes from foreign issuers of stablecoins to prevent the risk of runs on reserves held in the EU, European Central Bank President Christine Lagarde said on Wednesday.
The EU has put in place one of the world’s strictest regimes on crypto assets, requiring that stablecoins, which are pegged to an official currency, be fully backed by reserves.
But Lagarde said legislators should hold companies that issue stablecoins both in the EU and abroad to the same, high standards.
“European legislation should ensure that such schemes cannot operate in the EU unless supported by robust equivalence regimes in other jurisdictions and safeguards relating to the transfer of assets between the EU and non-EU entities,” she told a regulatory conference.
“This also highlights why international cooperation is indispensable. Without a level global playing field, risks will always seek the path of least resistance,” Lagarde said.
The ECB is the lender of last resort for euro zone banks and their chief regulator. It is also responsible for financial stability in the EU, along with national authority.
Lagarde noted that the EU’s Markets in Crypto-Assets Regulation (MiCAR) allowed holders of a stablecoin issued both in the bloc and abroad to liquidate it wherever they saw fit.
This means they would likely choose the EU in the event of a run, in light of its stricter requirements on reserves. But reserves held in the EU may prove too low during such a fire sale.
“In the event of a run, investors would naturally prefer to redeem in the jurisdiction with the strongest safeguards, which is likely to be the EU, where MiCAR also prohibits redemption fees,” Lagarde said. “But the reserves held in the EU may not be sufficient to meet such concentrated demand.”
(Reporting By Francesco Canepa; editing by Balazs Koranyi, William Maclean)
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