Risks of Multi-Issued Stablecoins to EU Financial Stability: Insights from Italy’s Central Bank

Stablecoins, particularly those issued simultaneously across multiple jurisdictions under a single brand, have emerged as a topic of significant concern for financial authorities in the European Union. A deputy governor of the Bank of Italy has cautioned that these cross-border tokens could pose substantial risks to the EU financial system, especially if their issuers operate outside of regions governed by equivalent regulatory standards.

The Warning from Italy’s Central Bank

At the “Conference on Payments Economics” held in Rome on October 19, Chiara Scotti, deputy governor of the Bank of Italy, discussed both the potential benefits and the liabilities associated with multi-issued stablecoins. She noted that while such tokens could enhance global liquidity and scalability, they may also expose the financial system to legal, operational, liquidity, and financial stability risks.

Scotti stated, “This structure could improve global liquidity and scalability. However, at the EU level, it entails considerable risks.” She strongly advocated that multi-issued stablecoins be restricted to jurisdictions that adhere to regulatory frameworks equivalent to those in the EU.

The deputy governor underscored the importance of fundamental safeguards for the financial system, including:

• Nominal Value Redemption Rights: Guaranteeing that token holders can exchange stablecoins for their underlying assets without losses.
• Cross-Jurisdictional Crisis Management: Developing robust protocols to address potential financial crises that could span multiple countries.

Stablecoins as Promising but Limited Payment Tools

Scotti delved further into the discussion, highlighting stablecoins as promising tools for reducing transaction costs, improving efficiency, and enabling around-the-clock payments. However, she was firm in her stance that only stablecoins pegged to a single fiat currency should be considered reliable payment instruments.

"Various digital assets are being utilized as payment tools, but only stablecoins pegged to a single currency are inherently fit for this function," Scotti remarked, emphasizing the importance of consumer protection facilitated by redemption rights.

She called for heightened cross-border collaboration among supervisory authorities to reinforce the soundness of the multi-issued stablecoin model. To ensure their stability, regulators must implement systems capable of monitoring reserve adequacy on a continuous basis.

Italy’s Tough Regulatory Stance on Stablecoins

Italian financial regulators have consistently expressed concerns about the unchecked proliferation of stablecoins and their potential systemic risks. This has culminated in coordinated efforts to tighten oversight.

The Italian Securities and Exchange Commission (CONSOB), in collaboration with French and Austrian regulators, has urged the European Securities and Markets Authority (ESMA) to centralize regulatory oversight of digital asset firms. ESMA, headquartered in Paris, is seen as a critical actor in managing this growing sector.

Similarly, Fabio Panetta, governor of the Bank of Italy and former European Central Bank (ECB) executive, publicly argued that adopting a euro-based central bank digital currency (CBDC) would be a more potent solution to digital asset risks than reliance on regulations alone. Panetta’s perspective aligns with findings from an April report issued by the Bank of Italy.

The report flagged stablecoins and non-financial corporations holding significant digital assets as contributors to systemic financial risks. Additionally, it warned of the ripple effect that widespread adoption of dollar-pegged stablecoins could have on global markets, amplifying price volatility in underlying assets like U.S. Treasury bonds. This could reverberate across the global financial system.

Italian Finance Minister Giancarlo Giorgetti chimed in on the matter in April, warning that U.S. policies concerning stablecoins could weaken the international standing of the euro. Such concerns reflect broader worries about the consequences of dollar dominance in the digital asset space.

Systemic Implications and Evolving EU Regulations

Italy's stringent regulatory approach signals a growing acknowledgment of the systemic risks posed by stablecoins, both within the EU and globally. As digital assets continue to gain traction, European regulators face mounting pressure to strike a balance between fostering innovation and protecting financial stability.

Stablecoins, while heralded for their potential to modernize payment systems, remain subject to intense scrutiny due to their cross-jurisdictional nature and implications for monetary sovereignty. The EU’s response—including collaborative oversight models and exploration of CBDCs—will shape how the region manages this disruptive financial technology in the years ahead.