The European Central Bank (ECB) has sounded the alarm on crypto and stablecoins in its latest bulletin, calling on the urgent enactment of proposed crypto regulation measures known as MiCA — which will take at least two and a half years to become law.
In its publication, titled A deep dive into crypto financial risks, the ECB sees the rise in crypto-assets, particularly stablecoins, as a growing threat to financial stability. It refers to the recent collapse of Terra’s stablecoin, TerraUSD, and the subsequent temporary de-pegging of Tether as a large cause for concern — stating “stablecoins may not be so stable after all.”
This pessimistic view on stablecoins has been held by the ECB for a while. Its recent bulletin reiterates that in the EU, stablecoins have no real use case other than accessing crypto-markets. The ECB concedes that blockchain can be better for payments and transfers than traditional digital payment systems, however this edge may be temporary until central banks roll out their e-money systems.
The central bank also praised the new environmental disclosure regulations which have been introduced by the EU Parliament’s Economic and Monetary Affairs Committee to MiCA — but also made a direct critical remark on Bitcoin’s excessive use of energy:
“The functioning of certain crypto-assets (like bitcoin) uses a disproportionate amount of energy that clashes with public and private environmental policies and environmental, social and governance (ESG) objectives.”
The ECB’s tone is very clear: they don’t like crypto or stablecoins — and they’d prefer if people used traditional means of payments and transfers.
The European Union may in general have a different idea and approach. Regulating crypto-assets and the crypto-industry with MiCA may be a middle ground — the EU could raise the standards in the industry to the extent that it becomes safer and more transparent, helping in the long-run to make it more acceptable.
ECB wants MiCA now, but that’s not how it works
In Europe, legislation always stems from proposals by the European Commission. No other EU entity can draft and present legal proposals. MiCA has been passed on to the European Council where member states make their prelimenary discussions on the proposals through their diplomats, called attachés.
The combined proposals of the Council are then sent to the specific Parliamentary Committee, in this case the Economic and Monetary Affairs Committee, which then sends a finalized proposed draft to Parliament.
Parliament then has the responsibility to discuss the draft and make amendments. After, the proposed draft would be sent to the Council of Ministers for final ratification.
With MiCA, we’re still at the stage where the draft proposal is in the hands of the Economic and Monetary Affairs Committee. The proposed regulations will probably be finalized and approved by the Council of Ministers late this year. EU nation-states will have at least a year to transpose their regulations and another year to enact enforcement.
So, the legal reality is that despite the urgency by the ECB, it’ll be at least another two and a half years before all EU member-states adopt MiCA. Some countries may adopt the regulations quickly and effectively once approved by the EU, but others will lag behind given local particularities for legislative processes.
However, given MiCA’s addition of crypto-miners in taxonomy regulations and further environmental disclosures on crypto-assets which exchanges will be obliged to publish, enforcement may have serious practical challenges which would further prolong the enactment of MiCA by nation-states.