The European Central Bank and the national central banks of EU member states are asking Brussels to change how regulated stablecoins hold their reserves under the Markets in Crypto-Assets Regulation (MiCA). In a September 22 response to the European Commission’s MiCA review, the European System of Central Banks proposed replacing fixed bank-deposit requirements with liquidity-based rules.
Under its proposal, a minimum share of reserves would mature within one working day and another portion within five working days. The recommendation does not change MiCA by itself.
The issue centres on the way stablecoin reserves are currently structured. MiCA divides payment-oriented stablecoins into two main categories: e-money tokens, or EMTs, and asset-referenced tokens, or ARTs.
Under Article 54 of MiCA, at least 30% of funds received in exchange for e-money tokens must be deposited in separate accounts at credit institutions. The remaining funds must be invested in secure, low-risk and highly liquid financial instruments.
Additional requirements apply to tokens classified as significant. Under Articles 56 and 58, these tokens face extra reserve and liquidity requirements. The relevant rules allow the deposit requirement to reach at least 60% of the amount referenced in each official currency.
Source: ecb.europa.eu
It is this 30% and 60% structure that the ESCB wants changed. The central banks argue that requiring stablecoin issuers to keep large amounts of reserves as bank deposits could create vulnerabilities if holders suddenly redeem their tokens.
Their concern is that a rapid redemption wave could force issuers to withdraw large deposits from banks. That could remove bank funding quickly and potentially transmit stress from the stablecoin market into the banking system.
The alternative proposed by the ESCB is based on maturity and liquidity. A certain portion of reserves would need to become available within one working day, while another portion would have to mature within five working days. The exact percentages have not been fixed in the public proposal.
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The ESCB points to instruments such as overnight reverse repurchase agreements and short-dated government securities as examples of assets that can potentially be converted into cash without creating the same concentration of claims on commercial banks.
Importantly, the central banks are not proposing to remove stablecoin holders’ redemption rights. MiCA’s rules giving e-money token holders the right to redeem at par would remain. The ESCB also supports retaining the prohibition on paying interest to holders of these tokens, including indirect returns through lending or staking arrangements.
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