ECB Rejects Euro Stablecoin Push, Warning of Risks to Banks and Monetary Policy

The European Central Bank warned EU finance ministers on Friday that proposals to expand euro stablecoin issuance could weaken bank lending and complicate monetary policy, according to three sources cited by Reuters.

The pushback came in response to a policy paper prepared by Brussels-based think tank Bruegel, whose authors presented their proposals at the two-day informal meeting of the Economic and Financial Affairs Council in Nicosia, Cyprus. The paper called for easing liquidity requirements for stablecoin issuers and potentially granting them access to ECB funding, arguing that these measures were necessary if the euro stablecoin market was to compete with dollar-backed rivals.

Europeans conduct 38% of global stablecoin transactions, yet euro-denominated tokens account for just 0.3% of total supply, per the policy paper. Circle’s EURC (EURC), the largest euro stablecoin, ranks only 12th globally, according to CoinMarketCap.

Top euro stablecoins. Source: CoinMarketCap

The question at the heart of the Nicosia meeting was whether Europe wants to close that gap badly enough to extend central bank-style support to stablecoin issuers. However, the ECB’s answer, for now, appears to be no.

Related: MiCA Made Euro Stablecoins Safe but Too Small, Report Says

Euro stablecoins could destabilize banks

ECB President Christine Lagarde led the resistance, warning that stablecoin issuance makes bank deposits less stable by transferring buyers’ funds to issuers’ accounts, according to Reuters. At scale, policymakers fear this accelerates disintermediation, raises bank funding costs and erodes the ECB’s ability to manage interest rates.

Several central bankers at the meeting also openly questioned the Bruegel proposal to position the ECB as a lender of last resort for stablecoin firms, an arrangement currently reserved for regulated banks, per the report.

In a speech at the Banco de España LatAm Economic Forum in Spain earlier this month, Lagarde argued that euro stablecoins could generate additional demand for euro-area safe assets but warned that the trade-offs, including financial stability risks, redemption pressures and weaker monetary policy transmission, outweigh the benefits.

Instead of stablecoins, Lagarde pointed to tokenized financial infrastructure anchored by central bank money as Europe’s preferred path, citing the Eurosystem’s Pontes project for wholesale settlement and the Appia roadmap for interoperable tokenized finance.

Related: European Banks Back MiCA Euro Stablecoin to Rival Dollar Tokens

EU central bankers shrug off digital dollarization fears

The Bruegel authors warned that stricter EU rules compared to the US risked accelerating digital dollarization, pushing activity outside the bloc. However, central bankers at the meeting largely dismissed that concern, with several calling instead for restrictions on European redemptions of both US and EU-issued stablecoins to guard against reserve runs, according to the Reuters report.  

The debate comes as the EU reviews its Markets in Crypto-Assets (MiCA) regulation, which requires stablecoin issuers to hold large reserves in liquid assets, in contrast to the lighter-touch US GENIUS Act.

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