Central Banks Seek to Overhaul Stablecoin Reserve Requirements

European central banks are pushing to remove a key safeguard for stablecoin reserves, citing concerns that commercial-bank backing can connect two sources of financial stress. The European System of Central Banks has recommended replacing the compulsory bank-deposit share under the Markets in Crypto-Assets regulation with minimum reserve percentages in assets maturing within one and five working days.

The current EU rules require stablecoins issued by electronic-money institutions to keep at least 30% of their reserves in commercial-bank deposits, rising to 60% for significant tokens. However, Britain's policy for systemic sterling stablecoin reserves excludes those deposits from coin backing.

By focusing on short-maturity assets, the proposed relaxation of compulsory bank allocation differs from Britain's outright exclusion of commercial-bank backing. The Bank of England's steady-state policy allows up to 70% in short-term UK government debt with no more than six months remaining to maturity, with 30% in central-bank deposits that pay no interest.

The EU requirement remains in force until a legislative amendment is made through the EU's lawmaking process. Removing the floors requires statutory changes, and until then, the deposit requirements remain the operating constraint for issuers.