ECB Questions Stability Of Stablecoins Amid US Monetary Policy Influence

According to Odaily, the European Central Bank (ECB) has raised doubts about the perception of stablecoins as a 'safe haven' for investors during market turbulence, arguing that they are significantly influenced by U.S. monetary policy. A recent working paper examined the connections between U.S. monetary policy, money market funds (MMFs), and stablecoins. The authors concluded that 'monetary policy, especially dollar policy, is a key link between cryptocurrencies and traditional financial markets.' The paper highlighted that stablecoins, which typically have a fixed price and are often pegged to fiat currencies like the U.S. dollar, are susceptible to shocks from traditional financial markets, such as changes in U.S. monetary policy, including interest rate hikes. The ECB evaluated data since 2019 and found that U.S. government interest rate increases led to a 10% decline in the market value of stablecoins within the following 12 weeks. In contrast, traditional non-crypto assets, such as money market funds, experienced significant capital inflows during the same period.