ECB: Expanded euro stablecoins could weaken banks

European Central Bank officials told EU finance ministers in Nicosia on Friday that proposals to expand issuance of euro-denominated stablecoins could weaken bank lending and complicate monetary policy. The comments came at an informal two-day meeting of the Economic and Financial Affairs Council.

A Brussels think tank presented a policy paper at the meeting urging lighter liquidity rules for stablecoin issuers and even suggesting potential access to ECB funding to help euro tokens compete with dollar-linked alternatives. The paper noted that Europe accounts for about 38% of global stablecoin transactions while euro-denominated tokens represent roughly 0.3% of total supply. The largest euro stablecoin, EURC, ranks 12th globally by market listings.

ECB President Christine Lagarde led opposition to the proposals, warning that “stablecoin issuance can make bank deposits less stable by transferring buyers’ funds into issuers’ accounts.” Officials said at scale the transfers could speed funding outflows from banks, lift banks’ funding costs and reduce the ECB’s ability to transmit interest-rate changes across the economy.

Several central bankers at the meeting questioned proposals to treat stablecoin firms like banks if the ECB were to act as a lender of last resort, noting that such support currently applies to regulated banks. Some participants proposed restricting euro-area redemptions of both U.S. and EU-issued stablecoins to limit the risk of reserve runs. Others rejected the view that stricter EU rules would automatically push users toward dollar-based tokens.

Lagarde acknowledged that euro stablecoins might increase demand for euro-area safe assets but said the financial stability risks and redemption pressures outweighed those gains. She highlighted alternative work on tokenized financial infrastructure anchored in central bank money, citing the Eurosystem’s Pontes project for wholesale settlement and the Appia roadmap for interoperable tokenized finance.

Bruegel’s authors cautioned that tighter EU regulation compared with the United States could drive activity outside the bloc and favor dollar-linked tokens. The debate unfolded as the EU reviews the Markets in Crypto-Assets regulation, which requires stablecoin issuers to hold substantial reserves in liquid assets; U.S. legislative proposals have been described as less restrictive.

For now, ECB officials signaled they do not support extending lender-of-last-resort protections or ECB funding to private euro stablecoin issuers. The MiCA review and ongoing work on tokenized central bank initiatives remain active policy processes.