In January the European Central Bank (ECB) announced that non-bank payment service providers (NB PSPs) would be allowed to access the TARGET payment systems and have central bank accounts. Some have misconstrued this as stablecoin issuers being able to back Euro stablecoins with central bank reserves. This is not correct.
A strong paper on stablecoins by the Bretton Woods Committee, was not technically incorrect, but perhaps implied this:
“The ECB published a decision that will grant non-bank payment service providers, including e-money institutions and regulated stablecoin issuers, access to Eurosystem central bank operated payment systems in 2025. But in other jurisdictions, such as the United States, nonbank entities that issue stablecoins typically have not been granted access to the central bank. A stablecoin backed by central bank reserves that settles in central bank money would effectively serve as the safest possible form of digital currency.”
The first sentence is most likely correct. The last sentence about a stablecoin being backed by central bank reserves is a hard ‘no’ for Europe. We’re not guessing. The ECB said so.
So stablecoins might be able to use central bank accounts for the purpose of on- and off-ramping funds via commercial banks, but not for holding the bulk of their stablecoin reserves.
Central bank accounts for settlement, not safeguarding
In Europe, stablecoin issuers are e-money providers, which are one of the main types of NB PSPs. The ECB was quite specific about the goals of allowing NB PSPs to get central bank accounts. It’s about the more efficient settlement of payments, not safeguarding assets. This also means that NB PSPs have their own BIC codes, as opposed to needing to go via other banks.
So, provided stablecoin issuers meet the various requirements (which is not a foregone conclusion), they may be allowed to have a central bank account and have access to the TARGET payment systems.
However, the amount held in that account should only be for its settlement needs. In the case of a stablecoin issuer, that’s likely to equate to the average net redemption rates for its stablecoin(s).
“From a price and financial stability perspective, it is important that such accounts are used for payment purposes and not misused for safeguarding purposes,” the central bank wrote.
It plans for national central banks to penalize NB PSPs if they hold more funds than needed in their central bank account for purely payment purposes. If there are repeat offenders, they may lose the central bank account.
Definitely not for stablecoin reserves
The ECB stated that the role of a central bank is not to act as a substitute for a commercial bank in providing cash safeguarding services. It’s concerned that a flight of deposits to NB PSPs could have a knock on effect on the ability of commercial banks to provide credit to the economy. Bearing in mind that under the EU’s MiCA regulations, stablecoins are e-money tokens issued by e-money firms, the ECB continued:
“Similarly, a synthetic central bank digital currency, for example electronic money issued by an NB-PSP and fully backed by central bank money, could blur the distinction between central bank money, a credit and liquidity risk free settlement asset, and commercial bank money. Depositing customer funds at central banks could risk conflating electronic money and other forms of money, including central bank money, in the mind of the public, thereby distorting perceptions of risk.”
MiCA also provided an option for crypto-asset service providers that hold money on behalf of clients to potentially hold the cash at a central bank. The ECB closed the door on that one too:
“A safeguarding option at Eurosystem central banks should not be offered to crypto-asset service providers for the same reasons that it should not be offered to NB-PSPs, as well as to maintain a level playing field among the various institutions participating in the payment services market.”
So there you have it. Stablecoin issuers, if they qualify, may get access to European central bank accounts for the purposes of on-ramping and off-ramping. But not for holding stablecoin reserves. That’s still a big win.
