Pierre Gramegna, managing director of the European Stability Mechanism, warned in Washington on Wednesday that stablecoins could endanger global financial stability if they are not properly insured or regulated.
According to Bloomberg, Gramegna’s comments were made at the International Monetary Fund’s annual meeting, where he said if stablecoins become mainstream and are not tied to central bank funding, “there will be risks to the entire financial system, not just in Europe but around the world.”
The IMF said in a report earlier this week that the $305 billion stablecoin market could undermine traditional lending, weaken monetary policy and trigger a run on the world’s safest assets.
The Financial Stability Board endorsed that concern, warning that stablecoins pose a growing threat to stability due to their explosive growth and increasing ties to the banking sector.
IMF warns of run risk and central bank intervention
The IMF’s Semi-Annual Financial Stability Report said a sudden loss of confidence in stablecoins could create “run risk” as investors rushing to redeem tokens could force issuers to sell reserve assets such as government bonds or bank deposits.
The report said such selling could spill over into the repo market, pushing up volatility and forcing central banks to intervene to stabilize prices.
Stablecoins are typically backed by the U.S. Treasury, making them the most conservative part of the cryptocurrency market. But the IMF said its size and increasing overlap with traditional finance now pose a global risk of contagion. It warned that banks’ exposure to these assets could spread shockwaves across multiple markets if investors panic.
Gramegna insisted that the European Union is not opposed to stablecoins, but stressed that they must operate under a strict framework that protects both consumers and financial institutions. “It has to be a safe framework for consumers and financial actors,” he said.
Gramegna also called on Europe to keep up with the United States and Asia in crypto development, arguing that the continent would be “losing an opportunity” if it did not produce a stablecoin linked to the euro.
All this also comes after Austrian Central Bank Governor Martin Kocher said at the Bloomberg Global Regulatory Forum that he does not think stablecoins will gain strong traction in the eurozone.
“Ninety-nine percent of stablecoins are dollar-denominated, so if Europe doesn’t produce euro-denominated stablecoins, we will ultimately lose the opportunity here,” Gramegna said. “I think it is possible for cash, digital currencies and stablecoins to coexist.”
Banks expand stablecoin projects amid increased scrutiny
The IMF recommendation comes as banks and other financial institutions expand their stablecoin activity following the passage of the US Genius Act, which establishes a new regulatory framework for tokens. The total market value of stablecoins has soared this year to more than $300 billion, according to data from DefiLlama.
Goldman Sachs, Deutsche Bank, and Banco Santander have announced plans to issue 1:1 reserve-backed tokens on a public blockchain. Citigroup has joined nine European banks to develop a regulated euro-based stablecoin.
Still, the IMF warns that as these dollar-linked tokens grow, they could limit central banks’ ability to manage interest rates and control inflation, especially in smaller economies where stablecoins may function as parallel currencies.
It could also change the structure of bond markets by encouraging preference for certain types of bonds, which could affect conventional lending, the IMF said.
The report also warned that a large loss in parity between the stablecoin and its reference currency could cause “direct losses and increased uncertainty” to users. Over the weekend, Cryptopolitan reported that the third-ranked stablecoin, Etena, temporarily lost its dollar peg as the crypto market experienced its largest single-day liquidation in history.
The Financial Stability Board also joined the IMF in warning that stablecoins remain an “emerging threat” and pledging to increase global oversight. Other major regulators, including the Bank for International Settlements, the European Central Bank, and the International Organization of Securities Commissions, have also warned that without strong controls, the stablecoin sector could spark a crisis that no central bank is prepared to contain.
