A European Central Bank report warns that stablecoins may pose a significant risk to monetary policy.

PANews reported on March 4th, citing Bloomberg, that a working paper from the European Central Bank (ECB) warns that the widespread adoption of stablecoins poses significant risks to the monetary policy sovereignty of Eurozone banks and the ECB, particularly stablecoins pegged to foreign currencies such as the US dollar. The paper points out that the rapid expansion of stablecoins could trigger a reallocation of retail bank deposits to digital assets, constraining banks' credit intermediation capabilities and increasing the uncertainty of policy rate transmission to loan volume. If a mature stablecoin market is dominated by non-euro-denominated instruments, the risks will be further amplified. The governor of the Dutch central bank stated that stablecoins, due to their reserve management methods, could pose a risk to the core of the financial system. The governor of the German central bank had previously advocated for euro-denominated stablecoins for payments.