Lagarde favors tokenized central bank money over euro stablecoins

European Central Bank President Christine Lagarde on Friday spoke at the Banco de España LatAm Economic Forum in Roda de Bará, Spain, saying euro-denominated stablecoins are not the best way to strengthen the euro’s international position. She urged policymakers to develop tokenized central bank money and the public infrastructure needed to support it.

Lagarde argued the debate often mixes two separate functions of stablecoins: a monetary role and a technological role. “The benefits attributed to them rest on two distinct functions – a monetary function and a technological function – that are systematically conflated in the current debate,” she said. Separating those functions, she added, changes the case for promoting euro stablecoins as a direct rival to dollar-backed tokens.

On monetary grounds, Lagarde acknowledged that euro stablecoins operating under the EU’s Markets in Crypto-Assets Regulation (MiCA) could raise global demand for euro-area safe assets. She warned of trade-offs, including the risk of rapid redemptions, fragile reserve structures and weaker monetary policy transmission if deposits shift away from traditional banks. She cited the 2023 collapse of Silicon Valley Bank and the episode when a major dollar stablecoin briefly lost its peg after its issuer disclosed exposure to the bank.

On the technology side, Lagarde said tokenized finance needs public rails so alternative forms of tokenized money — including tokenized commercial bank deposits or tokenized central bank money — can operate safely on distributed ledger platforms. She rejected abandoning stablecoin technology outright and called for infrastructure that anchors tokenized instruments to central bank money.

Lagarde pointed to two European initiatives. The Pontes project seeks to connect distributed ledger platforms to the Eurosystem’s settlement infrastructure so DLT-based transactions can be settled directly in central bank money. The Appia roadmap, published in March, sets out steps toward an interoperable European tokenized finance ecosystem with an objective timeframe around 2028.

She contrasted the European approach with the United States, where dollar-backed stablecoins account for the majority of the market, around 98 percent. Lagarde noted the U.S. has promoted dollar stablecoins to support the dollar’s international role and said Europe should build its own foundations and systems rather than replicate instruments developed elsewhere.

Stablecoins are digital tokens that aim to maintain a stable value, typically pegged to a fiat currency and backed by reserves. MiCA creates a regulatory framework for crypto-assets in the EU, including rules for stablecoin issuers and reserve management. Central bank digital currencies and projects that tokenize central bank reserves differ from privately issued stablecoins because they are anchored directly to central bank liabilities, which supporters say reduce run risk and provide clearer policy control.