Bank of Italy Official Warns of Stablecoin Risks to EU Financial Stability

According to Cointelegraph, a senior official from the Bank of Italy has raised concerns about the potential risks posed by stablecoins issued by multiple entities across different countries to the European Union's financial system. Chiara Scotti, vice director of the Bank of Italy, emphasized that unless these stablecoins are restricted to jurisdictions with equivalent regulatory standards, they could present significant legal, operational, liquidity, and financial stability risks. Scotti's remarks were made during the Economics of Payments Conference held in Rome on September 18. Scotti elaborated on the potential dangers of multi-issuance stablecoins, which are digital tokens issued in several countries under a single brand. While these stablecoins could enhance global liquidity and scalability, they also bring considerable risks, especially if at least one issuer operates outside the EU. To mitigate these risks, Scotti recommended that such stablecoins should be confined to jurisdictions with similar regulatory frameworks and ensure redemption at par. Additionally, she stressed the importance of enforcing cross-jurisdictional crisis protocols to maintain stability. Despite the risks, Scotti acknowledged the potential benefits of stablecoins, describing them as promising tools for reducing transaction costs, improving efficiency, and providing 24/7 availability. However, she argued that only stablecoins pegged to a single fiat currency are suitable as payment instruments due to their ability to offer a high level of customer protection through the right to redemption at their nominal value. This highlights the need for strong cross-border cooperation among supervisory authorities to consistently monitor and verify the adequacy of reserves. Italian regulators have expressed concerns over the growing prominence of stablecoins. The country's financial markets regulator, Commissione Nazionale per le Società e la Borsa, has joined forces with regulators in France and Austria to advocate for transferring regulatory supervision of crypto firms to the Paris-based European Securities and Markets Authority. In May, Fabio Panetta, a former European Central Bank official and Governor of the Bank of Italy, suggested that a euro-based central bank digital currency could be a more effective tool for addressing the risks associated with increasing cryptocurrency adoption, rather than regulating cryptocurrencies. This followed a report by the Bank of Italy in April, which identified stablecoins and non-financial firms' crypto exposure as key concerns. The report warned of potential systemic risks if dollar-pegged tokens were to become widespread, noting that disruptions in stablecoins or the underlying US government bonds could have repercussions for other parts of the global financial system. Additionally, Italy's Minister of Economy and Finance, Giancarlo Giorgetti, cautioned that US stablecoin policies might threaten the euro's dominance.