Bank of Spain affirms that a "widespread" use of 'stablecoins' could imply "structural risks"

MADRID, 24 May. (EUROPA PRESS) -

The General Director of Financial Stability, Regulation and Resolution of the Bank of Spain, Ángel Estrada, has pointed out that the widespread use of 'stablecoins' could imply structural risks in the medium term for financial stability as a result of the increase in interconnections between the financial market and the "erosion of the deposit-taking capacity of the banking sector".

During his speech at the 13th annual conference on Spanish capital markets, organized by the Association of Financial Markets in Europe (AFME), Estrada pointed out the main risks to financial stability, such as the increase in the price of raw materials and energy or the persistence of volatility derived from the pandemic, since the 'zero Covid' policy of some countries such as China could continue to generate bottlenecks in supply chains.

In addition to the macroeconomic risks, he has pointed to the uncertainties posed by the cryptoactive market, which includes both cryptocurrencies -- such as bitcoin -- and stablecoins, associated with stable assets such as fiat money or raw materials.

In this sense, he has called for the size of these markets and their interconnections to be taken into account. Thus, he pointed out that the cryptoactive market in Spain in 2021 accounted for 4.9% of GDP, a figure that is still "small, but has increased a lot compared to previous years", with an average annual increase of 20% in the last years.

Regarding the 'stablecoins', he has pointed out that these assets have more interconnections with the traditional financial system, which implies a risk for financial stability.

In fact, in the Financial Stability Report for 2021, the supervisor already warned that an increase between 'stablecoins' and the traditional financial market may imply "medium-term structural risks for financial stability through the erosion of the deposit-taking capacity of the banking sector, which would potentially alter the effects of monetary policy and condition capital flows".

Likewise, the report, published at the end of April, indicated that an increase in pressure to convert holdings of 'stablecoins' into legal tender "could lead to the hasty liquidation of positions in these products and generate liquidity tensions", among other risks.

However, Estrada has indicated that 'stablecoins' pose less risk than crypto assets, such as bitcoin, which do not have any assets to support their value. In addition to the volatility of these 'crypto' markets, Estrada has pointed out other risks linked to the lack of user protection against fraud, the opacity of this type of product or the lack of regulation, among others.