- The European Central Bank has issued a warning about stablecoins
- European Central Bank called the term stablecoin misleading
- The apex financial institution said stablecoin doesn’t adequately describe how the asset should be backed
Cryptocurrency News Today – a top financial institution has issued a warning regarding stablecoins. The European Central Bank (ECB) is the entity behind the report. As this top financial house prepares its plans to launch a digital Euro, they have issued a warning regarding the nature of stablecoins.
The European Central Bank recently released a report stating the possibilities of issuing a digital Euro and the implications that such a move could have on the European economy. Although, the report has described several positive things that could come from digitization, the European Central Bank is not 100% certain about some aspects of the digital currency industry. The ECB believes the term stablecoin may be misleading.
Stablecoin Doesn’t Adequately Describe How the Asset Should be Backed
The apex financial institution revealed that the term stablecoin doesn’t accurately describe the way the asset is backed. In a statement:
“As regulatory guidelines are established and the different approaches are defined, the phrase ‘stablecoin’ should be removed and replaced by a phrase that shifts the emphasis away from the promise of stability given by the issuer.”
Hence, tey ECB is warning that while described as an asset that will not have price fluctuations, there are no guarantee user funds will be insured. Rather the ECB recommends more descriptive names for the asset class. It claims that stablecoins should be classified into several groups according to how they are backed. Take an example, stablecoins that are collateralized should be named differently compared to algorithmic stablecoins. The disparities over stablecoins come at a time when virtual versions of fiat money are becoming popular around the world.
Governments are Still in the Process of Issuing the Advantages of Digital Assets
Governments are still in the process of hashing out a way to issue the advantages of crypto (and maintain the type of stability that fiat offers). There are also concerns about whether digital currencies will enjoy the protections of the traditional banking sector. The President of the ECB, Christine Lagarde, believes that issuing a digital Euro could bring many advantages to the European Union. According to her the move will:
“Improve our autonomy and make Europe better protected now and in the future. As legislators, we have an important role to play in creating policies that can reinvigorate our economies.”
Fees days back, the Chinese government said the move to digital assets was the new battlefield for nations. China already has a head start compared to the rest of the world. Countries around the globe are seriously considering whether digital currencies will be a necessity in the future.