European Central Bank: Growth of Stablecoins Will Weaken Bank Lending Capacity and Monetary Policy Transmission Summary

The latest research from the European Central Bank shows that the increasing use of stablecoins is undermining the impact of monetary policy on bank lending, leading to a reduction in bank deposits and corporate loans. This makes banks more reliant on higher-cost market financing. The extent of stablecoins' impact depends on their adoption scale and regulatory approach, especially for stablecoins denominated in foreign currencies.

According to ChainCatcher, reports from Cointelegraph indicate that a recent working paper published by the European Central Bank on Tuesday reveals that the growth in stablecoin usage is drawing funds away from bank deposits, weakening the transmission of monetary policy to loans. The study shows that rising interest in stablecoins is associated with a significant decline in retail bank deposits and a decrease in corporate loans. When deposits decrease, banks may be forced to rely more on wholesale or market financing, which is typically more expensive and less stable.

The European Central Bank points out that the degree to which stablecoins interfere with the monetary policy transmission channel depends on their adoption scale, design features, and regulatory approach. In particular, stablecoins denominated in foreign currencies may further weaken the link between domestic monetary policy and bank lending.