ECB Pushes Back on Euro Stablecoins, Fears Losing Control Over Interest Rates

The European Central Bank (ECB) has recently expressed clear scepticism towards plans to expand the market for euro stablecoins. ECB President Christine Lagarde and other central bankers are warning of significant risks to financial stability and the effectiveness of monetary policy. One occasion was a meeting of EU finance ministers in Cyprus, at which a Brussels-based think tank proposed far-reaching concessions for crypto issuers.

What Are Stablecoins and Why Are They in Focus?

Stablecoins are digital tokens whose value is pegged to a fiat currency such as the US dollar or the euro. They are used primarily for cross-border payments, where traditional bank transfers would be more expensive, as well as a means of payment within the crypto ecosystem. The global market has grown from around ten billion US dollars six years ago to more than 300 billion US dollars today. Around 98 percent of all stablecoins are pegged to the US dollar, dominated by the providers Tether and Circle.

In Europe, the think tank Bruegel proposed at an informal meeting of EU finance policymakers in Nicosia that liquidity requirements for crypto issuers be relaxed and that they possibly be granted access to ECB refinancing operations. The aim would be to build a European stablecoin market, which is currently dominated by dollar-based products.

Why Does the ECB View Stablecoins as a Risk?

The ECB bases its scepticism on two central arguments: the threat to financial stability and the weakening of monetary policy transmission.

Threat to Interest Rate Policy

The ECB’s ability to ensure price stability depends on interest rate decisions being passed on to companies and households through the banking system. If depositors shift their money from traditional bank accounts into stablecoins, this capital no longer flows directly into banks as a stable source of refinancing. Instead, it returns as more expensive wholesale funding.

According to ECB research, large-scale substitution of deposits would weaken lending to businesses and impair the pass-through of key interest rates to the real economy. In the euro area, where banks are the dominant source of credit, this effect would be particularly pronounced. In the United States, where companies have broader access to capital markets, a decline in bank lending could be more easily absorbed.

Risks to Financial Stability

Stablecoins are private liabilities whose stability depends on the credibility and liquidity of their backing reserves. If confidence wavers, redemption demands can become rapid and self-reinforcing. Lagarde cites as an example the collapse of Silicon Valley Bank in March 2023: at the time, 3.3 billion US dollars of the reserves of the stablecoin USD Coin were held at the bank, whereupon the token briefly fell to 0.877 US dollars, well below its guaranteed par value of one dollar.

There is also the risk associated with joint issuance structures, in which the same stablecoin is issued by both EU and non-EU issuers. In a crisis, investors would prefer to redeem where the strongest protection exists — that is, in the EU — which could overburden the reserves held there.

Lagarde’s Speech in May 2026: Separating Instrument and Function

In a keynote address at the Banco de España LatAm Economic Forum on 8 May 2026 in Roda de Bará, Lagarde set out her position in detail. She argued that the current debate contains a fundamental conceptual error: stablecoins are being treated as a single instrument, even though they fulfil two entirely different functions.

“What this debate has not asked clearly enough so far is what stablecoins are actually for. The benefits attributed to them rest on two distinct functions — a monetary one and a technological one — which are being systematically conflated in the current debate.”

The monetary function concerns the global reach of a currency. Euro stablecoins could, in the short term, increase international demand for European government bonds and reduce financing costs. However, in Lagarde’s assessment, the associated risks to financial stability and monetary policy clearly outweigh these short-term benefits.

The technological function, by contrast, concerns the settlement of transactions on the basis of distributed ledger technology (DLT). Here the ECB president sees genuine added value, but warns that private stablecoins as a foundation for settlement infrastructure have structural weaknesses: they can deviate from their peg during periods of stress and therefore do not offer the unconditional finality that central bank money guarantees.

What Does the ECB Propose Instead?

Lagarde clearly advocates tokenised commercial bank deposits as an alternative. These would combine the security of regulated bank accounts with the speed and programmability of DLT platforms. At the same time, the ECB is building its own infrastructure with the so-called Pontes project, which will connect DLT platforms to the existing TARGET settlement system from September 2026 onwards, so that transactions can be settled in central bank money from the outset.

“Europe knows which port it is sailing to. Our task is not to copy instruments developed elsewhere, but to create the foundations and the infrastructure that serve our own objectives.”

For the long-term strengthening of the euro as an international currency, Lagarde is counting on deeper and more integrated capital markets within the framework of the European Savings and Investments Union, as well as a broader base of safe European bonds — not on stablecoins.

Reactions and Current Status

At the meeting in Nicosia, the Bruegel proposals met with mixed reactions from EU finance ministers. Several central bankers rejected in particular the idea of establishing the ECB as a lender of last resort for stablecoin issuers — a role that has hitherto been reserved exclusively for the regulated banking sector.

At the same time, the industry is growing in Europe: a consortium of European banks under the name Qivalis, which now includes 37 institutions from 15 countries, is planning to launch a euro stablecoin this year. The EU Commission is currently reviewing its crypto regulation MiCAR, which has been in force since 2024 and requires stablecoin issuers to hold a large proportion of their reserves in bank deposits and other liquid assets. By comparison, the requirements under the GENIUS Act in the United States are significantly lighter, which, according to Bruegel, increases the risk of “digital dollarisation.” However, ECB representatives played down this danger at the meeting in Nicosia.