EU official warns stablecoins could threaten global finance if unmanaged

Pierre Gramegna, the managing director of the European Stability Mechanism, warned in Washington on Wednesday that stablecoins could endanger global financial stability if they are not properly guaranteed or regulated.

Gramegna’s comments came during the International Monetary Fund’s annual meetings, where he said that if stablecoins ever became mainstream without being tied to central bank money, “there’s a risk to the whole financial system, not just in Europe, but the whole world,” according to Bloomberg.

The IMF, in a report earlier this week, had said that the $305 billion stablecoin market could shake traditional lending, weaken monetary policy, and potentially trigger runs on the safest global assets.

The Financial Stability Board backed that concern, warning that the explosive growth of stablecoins and their growing ties to the banking sector make them a rising threat to stability.

IMF warns of run risks and central bank intervention

The IMF’s semiannual financial stability report said a sudden loss of trust in stablecoins could create a “run risk,” because if investors rush to redeem their tokens, issuers might be forced into fire sales of reserve assets like government bonds or bank deposits.

The report said such selloffs could spill into repo markets, push up volatility, and force central banks to step in to stabilize prices.

Stablecoins are typically backed by US Treasuries, making them the most conservative slice of the crypto market. Yet the IMF said their size and the increasing overlap with traditional finance now pose global contagion risks. It warned that banks’ exposure to these assets could spread shocks across multiple markets if investors panic.

Gramegna insisted that the European Union is not against stablecoins, but stressed that they must operate under a strict framework that protects both consumers and financial institutions. “It must be in a framework that is safe for consumers and financial actors,” he said.

Gramegna also called on Europe not to fall behind the United States or Asia in crypto development, arguing that if the continent doesn’t produce stablecoins pegged to the euro, it will “lose an opportunity.”

All these also came after Austrian central bank chief Martin Kocher said at the Bloomberg Global Regulatory Forum that he didn’t believe stablecoins would gain strong traction in the eurozone.

“As 99% of stablecoins are denominated in dollars, if Europe doesn’t produce stablecoins denominated in euros we will eventually lose an opportunity here,” Gramegna said. “I do think there is a possibility of coexistence of cash, digital currency and stablecoins.”

Banks expand stablecoin projects amid rising oversight

The IMF’s admonitions come as banks and other financial institutions expand their stablecoin activities, following the passage of the US Genius Act, which establishes a new regulatory framework for the tokens. The total market value of stablecoins has soared this year do surpass $300 billion, data from DefiLlama show.

Goldman Sachs, Deutsche Bank, and Banco Santander announced plans to issue a 1:1 reserve-backed token on public blockchains. Citigroup joined nine European banks to develop a regulated euro-based stablecoin.

Still though, the IMF is warning that as these dollar-linked tokens grow, they could limit central banks’ ability to manage interest rates and control inflation, especially in smaller economies where stablecoins may act as parallel currencies.

They may also alter the structure of bond markets by prompting a preference for certain kinds of debt, which has implications for traditional lending, the IMF said.

The report also cautioned that any large-scale loss of parity between a stablecoin and its reference currency would cause “direct losses and heightened uncertainty” for users. Over the weekend, Cryptopolitan reported that Ethena, the third-largest stablecoin, briefly lost its dollar peg as crypto markets saw their largest single-day liquidation in history.

The Financial Stability Board joined the IMF in warning that stablecoins remain an “emerging threat” and promised to increase global oversight. Other major regulators, including the Bank for International Settlements, the European Central Bank, and the International Organization of Securities Commissions, have also cautioned that without strong management, the stablecoin sector could create a crisis that no central bank is ready to contain.

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