EU to Allow Interchangeable Stablecoins Across Borders

The European Commission is preparing to clarify that the EU’s crypto regulations allow stablecoins issued by an EU-licensed entity to be treated as interchangeable with those issued by affiliated non-EU entities, as reported by Reuters. The clarification is expected soon, though no specific timing or further details were provided.

Stablecoins, which are cryptocurrencies pegged to traditional fiat currencies like the U.S. dollar to maintain price stability, have drawn growing attention from regulators. This latest guidance reflects ongoing efforts to address the risks they may pose to financial systems.

European Central Bank President Christine Lagarde warned earlier this week that stablecoins present risks to monetary policy and financial stability. She called on EU lawmakers to pass legislation to support the introduction of a digital euro.

In 2023, the EU adopted the Markets in Crypto-Assets (MiCA) regulation, which requires stablecoin issuers—referred to under the rules as e-money token (EMT) issuers—to secure regulatory approval before offering tokens in the bloc. These issuers must hold the majority of their reserves in EU-based banks, ensuring they can fulfill redemption requests when users want to convert tokens back into fiat currency.

The clarification follows an April 2024 query from France’s banking regulator, which asked whether identical tokens issued by an EU-authorized firm and its non-EU counterpart could be considered interchangeable or "fungible."

The European Central Bank has voiced concerns over this approach. In an April document, it warned that reserves held within the EU could be used to honor redemption requests from holders outside the bloc, which could “risk undermining EU strategic autonomy/sovereignty.”

A European Commission spokesperson downplayed those concerns, stating that “a run on a well-governed and fully collateralised stablecoin was very unlikely.” They also noted that “non-EU holders of a stablecoin which is jointly issued in the EU and outside the EU would make their redemption requests to the non-EU entity.”

Additionally, the spokesperson said that “issuers of EMTs that also issue fungible tokens abroad can be required to have a re-balancing mechanism to ensure that reserves in the EU match token holdings in the EU.”

The Financial Times was the first to report on the Commission’s upcoming guidance.