Francesco Mazzaferro: Digital Assets – challenges for the competitiveness and integrity of the EU financial system

Speech by Francesco Mazzaferro, Head of the ESRB Secretariat, at the Exchange of views of the Committee on Economic and Monetary Affairs of the European Parliament

Thank you for the opportunity to speak to you today. Digital assets represent one of the most transformative developments in the financial system of our time, offering remarkable opportunities for innovation and efficiency. However, we must remember that while technology can transform risks, it cannot eliminate them.

I will begin my remarks by referring to a recent and urgent recommendation by the European Systemic Risk Board (ESRB) in the area of stablecoins. I will then look at the future opportunities and potential risks posed by tokenisation more broadly before discussing some recent market issues with digital assets.

An urgent recommendation: mitigating risks from third-country multi-issuer stablecoin schemes

The General Board of the ESRB has recently adopted a recommendation addressing third-country multi-issuer stablecoin schemes.[1] These schemes involve EU and third-country entities jointly issuing interchangeable stablecoins.

At first sight, this would promote global integration. However, a severe stress event affecting multi-issuer stablecoins may prompt all holders to redeem from the jurisdiction offering the best redemption terms. Imagine US dollar stablecoin holders from different jurisdictions trying to benefit from the highly favourable EU redemption regime under the Markets in Crypto-Assets Regulation (MiCAR). It is highly likely that the size of the redemption requests from non-EU holders would far exceed the size of the EU issuer’s reserves. This would likely delay redemptions and, in turn, amplify runs within the EU. Furthermore, possible restrictions imposed by third-country authorities on the transfer of reserves between jurisdictions could further exacerbate our domestic liquidity issues.