European Central Bank: The growth of stablecoins will weaken banks' lending capacity and the transmission effect of monetary policy

According to a report by Cointelegraph, the latest working paper released by the European Central Bank on Tuesday shows that the growth of stablecoin usage is siphoning off funds from bank deposits, weakening the transmission of monetary policy to loans.

The research indicates that the 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 unstable. The European Central Bank points out that the extent of stablecoins' interference with the transmission channels of monetary policy 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 loans.