MiCA Won’t Save Us from a Stablecoin Crisis. It Might be Building One
MiCA aims to regulate stablecoins but fails to address systemic risks they pose once integrated into the financial ecosystem. While it introduces measures like proof-of-reserves and capital rules, these do not guarantee stability. As stablecoins gain mainstream acceptance, they compete with bank deposits, potentially endangering the traditional banking system and monetary policy transmission. The Bank of England has suggested that stablecoins be regulated like banks, citing the risks arising from a large shift of deposits towards stablecoins. Regulatory arbitrage could lead issuers to move offshore, complicating oversight. MiCA's assumption that proof-of-reserves equates to stability is flawed, as fully backed stablecoins can still instigate market volatility. Stablecoins blur the line between private assets and public money, necessitating a comprehensive regulatory approach. In legitimizing stablecoins, MiCA may inadvertently invite fragility into the financial system. By focusing on issuer stability rather than broader macro-prudential concerns, it risks accelerating global arbitrage and systemic entanglement, challenging its effectiveness in preventing future crises.
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