Lagarde: Euro Stablecoins Risk Stability, Weaken Policy

At the Banco de España LatAm Economic Forum in Roda de Bará, Spain, on Friday, European Central Bank President Christine Lagarde warned that euro stablecoins are “not an efficient way” to strengthen the euro’s international role and outlined two main risks she called material to policymakers.

Lagarde said the first risk is financial instability. She described stablecoins as private liabilities whose value depends on credible backing. When confidence falls, she said, stablecoins can face sudden, self-reinforcing redemption pressures that resemble bank runs.

The second risk concerns monetary policy transmission. Lagarde warned that large-scale migration of deposits into non-bank stablecoins could reduce banks’ funding and lending capacity and weaken the pass-through of central bank policy rates to the real economy, particularly in the euro area where banks provide most credit.

As an illustration of the run risk, Lagarde pointed to March 2023, when Circle’s USDC briefly lost its dollar peg after $3.3 billion in reserves were tied up at Silicon Valley Bank, causing the token to fall to about $0.877. She urged regulators to act before a crisis exposes weaknesses in private stablecoin designs.

Industry leaders pushed back. James Brownlee, chief executive of t-0, argued that recent U.S. legislation creates a structural advantage for dollar-linked tokens and warned that a negative signal from Europe’s central bank could deter compliant private investment in euro-denominated alternatives. Mouloukou Sanoh, co-founder and CEO of MANSA, cautioned that a dominant dollar stablecoin market could crowd the euro out of on-chain cross-border payments.

There is not unanimous agreement among European central bankers. Joachim Nagel, president of the German Bundesbank and a member of the ECB’s Governing Council, has argued that euro-pegged stablecoins could offer low-cost cross-border payments and help prevent dollarization of digital payment flows.

Lagarde outlined other paths to bolster the euro, including deeper capital market integration through a savings and investment union and a stronger safe-asset base. She also noted recent ECB agreements with European standards bodies to develop technical standards for a digital euro payment infrastructure aimed at reducing reliance on proprietary systems.

Lagarde said the debate has shifted from whether stablecoins should exist to whether jurisdictions can afford to be without them, citing U.S. legislative moves such as the GENIUS Act. Regulators and market participants are expected to continue discussions on rules and infrastructure for digital money in the months ahead.