The European Central Bank (ECB) pushed back against recent proposals advocating for expanded issuance and central bank support of euro stablecoins, signaling concerns over the risks they pose to financial stability and monetary policy effectiveness. This stance emerged during a meeting of EU finance ministers, where a Brussels think tank presented recommendations to ease liquidity rules for stablecoin issuers and allow them access to ECB funding to help them compete with dominant dollar-backed tokens.
The policy paper by Bruegel highlighted that while European users conduct a significant share of global stablecoin transactions, euro-denominated stablecoins represent only a tiny fraction of total supply. This imbalance has sparked debate about whether Europe should actively support euro-based stablecoins to prevent further dominance by dollar tokens. However, ECB President Christine Lagarde and other central bankers expressed strong reservations, emphasizing that increased stablecoin issuance risks destabilizing traditional bank deposits by shifting consumer funds away from regulated banks.
At scale, this shift could accelerate financial disintermediation, increase banks’ funding costs, and limit the ECB’s ability to steer interest rates, undermining core monetary policy tools. The proposal for the ECB to act as a lender of last resort for stablecoin issuers met particular skepticism since such support has traditionally been confined to regulated banking institutions.
Lagarde has previously acknowledged that euro stablecoins might boost the demand for safe euro-denominated assets but argued that these potential benefits are outweighed by risks such as redemption pressures, financial instability, and weakened monetary policy transmission. Instead, she advocated for the development of tokenized financial infrastructures rooted in central bank money, referencing initiatives like the Eurosystem’s wholesale settlement project Pontes and the interoperable tokenized finance roadmap Appia as more strategic paths forward for Europe.
The Brussels-based think tank warned that stringent EU regulations compared to the US could accelerate “digital dollarization,” pushing stablecoin activities beyond the bloc’s borders. Yet, several EU central bankers downplayed those concerns, focusing instead on imposing restrictions on redemptions involving both US and EU stablecoins to protect against asset runs.