Sleijpen warns of the possibility of stablecoins being “systemically relevant at a certain point” if they are to continue growing at the same pace as they have been so far this year. This especially those that are directly linked to US assets, in particular many of those which are supposedly backed by US Treasuries.
He argues that if they grow to be of certain stature, things could get dicey in that: “If stablecoins are not that stable, you could end up in a situation where the underlying assets need to be sold quickly.”
As such, that will have cause reverberations across broader markets with financial stability being threatened. In turn, that will have spillover impact on the wider economy and inflation as well.
And if it reaches such a scenario, the ECB would have to consider taking action and “probably have to rethink monetary policy”. Sleijpen notes that he’s not sure whether that would mean a rate cut or rate hike as it would depend on the nature of the situation. But before getting to that, he says that financial stability tools should be used first.
It’s an interesting point of view/discussion and highlights some openness in terms of creating a discourse at least. The full story can be found here (may be gated).
This article was written by Justin Low at investinglive.com.