Stablecoins could weaken bank lending and monetary policy in Europe: ECB

The European Central Bank warns in a new working paper that as stablecoin adoption grows, deposits may leave banks, affecting lending and monetary policy transmission.

The European Central Bank said increasing stablecoin use may pull money out of bank deposits and weaken the way monetary policy flows through to lending, according to a new ECB working paper.

Growing adoption of stablecoins, which are digital assets often pegged to currencies such as the US dollar or euro, is expected to draw funds away from traditional bank deposits, the ECB said in its latest working paper series, “Stablecoins and Monetary Policy Transmission,” released Tuesday.

“Our analysis shows that rising interest in stablecoins is linked to a measurable decline in retail bank deposits and a reduction in lending to firms,” ECB staff said, adding that stablecoins can reduce the amount of credit banks provide to the real economy.

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