The European Central Bank believes that it has the necessary instruments to regulate stablecoins, while arguing that their name should be replaced.
In a recent report on stablecoins, the European Central Bank (ECB) questioned the accuracy of their name arguing that it may be misleading to users. The paper also highlighted that stablecoins could have a significant role in a digital economy if adequately regulated.
The Name Stablecoins May Not Be A Proper Fit: ECB
Whether they are backed by a fiat currency like the US dollar or commodities such as gold, stablecoins were created to provide a â€œstableâ€ alternative to the highly volatile cryptocurrency market. Their role inside and outside the cryptocurrency field has been expandingÂ rapidly in the past few years.
However, it seems that the ECB doesnâ€™t consider the term â€œstablecoinâ€ to be appropriate. In a recently released paperÂ examining the nature, use cases, and potential of stablecoins, the ECB wrote:
â€œThe term â€œstablecoinâ€ may be perceived to have positive connotations in terms of stablecoinsâ€™ intrinsic stability and usability as a form of money, but these features are neither intrinsic to, nor a prerogative of, stablecoins in and of themselves â€“ instead, they can be attained only through appropriate design and effective risk management.â€
Further below the paper, the ECB noted that the name should be substituted upon establishing clear regulatory principles on stablecoinsâ€™ usage. Although the document didnâ€™t offer an alternative, it said that it needs to be a â€œchoice of terminology to shift the emphasis away from the issuerâ€™s promise of stability.â€
ECB Has The Tools To Regulate Stablecoins
Similarly to the US Commodity Futures Trading Commission, the ECB argued that stablecoins require a proper legislative framework. However, the report highlighted that the central bank has the necessary tools to establish concrete regulations.
The ECB asserted that it had provided a range of â€œsupervisory powersâ€ to banks enabling them to mitigate the risks stemming from stablecoin-related activities. Nevertheless, banks should also establish an appropriate risk management framework to commensurate their role in stablecoin usage.