: Unlock Financial Stability: Grant Stablecoin Issuers Access to Central Bank Accounts

• Banks dominate payments, which could be a risk to financial stability.
• Regulated stablecoin issuers are forced to rely on banking partners for fiat settlement, exposing them to disproportionate cost and counterparty risks.
• Granting regulated fiat stablecoins access to central bank accounts would eliminate exposure to associated risks and boost innovation in the payments market.

Banks Dominate Payments

Banking is a major factor in the payments industry, however, this dominance can introduce risks that could affect financial stability. Recently, four banks in the United States and one in Switzerland collapsed within 11 days of each other—a painful reminder that banks bear significant risks that can quickly spill over into other industries. This has had a particular impact on the crypto-asset sector as regulated stablecoin issuers are forced to rely on banking partners for fiat settlement, exposing them to disproportionate cost and counterparty risk.

Limiting Contagion Risks

Financial regulation should aim to mitigate financial stability risks and limit contagion risks independent of direction. Granting regulated fiat stablecoins access to central bank accounts would allow issuers to eliminate their exposure to associated risks while promoting innovation in the payments market. The European Commission’s assessment of the Payment Service Directive (PSD) has noted that indirect access constrains competition in the payments market, ultimately hindering progress with digital currencies and assets such as e-money tokens (EMTs).

MiCA Regulation

The Markets in Crypto-Assets (MiCA) regulation brings tremendous opportunity for Europe’s digital currency landscape; however it mandates that EMT issuers hold at least 30% of their reserves with credit institutions before taking effect at the end of June 2022—before recent banking collapses highlighted inherent banking risks early 2023. This compromises not only safety but also limits potential progress with digital currencies and assets such as e-money tokens (EMTs).

Boosting Innovation

Making accounts at Europe’s central banks accessible to payment companies — including stablecoin issuers — would therefore be hugely beneficial for both financial stability and progress with regards to digital assets such as EMTs by eliminating exposure to associated risks while boosting innovation in the payments market through increased competition.

Conclusion

Granting regulated fiat stablecoins access to central bank accounts would help ensure financial stability while allowing innovative payment services like EMTs greater freedom from costly banking fees and counterparty risk exposure. Ultimately this could lead towards greater progress with digital currencies whilst providing users with safer options when it comes managing their money online