The ECB has raised alarms about euro stablecoins, warning they could destabilize bank lending and complicate interest rate management.
The European Central Bank (ECB) has expressed significant concerns regarding euro stablecoins, highlighting potential risks that could hinder bank lending and disrupt interest rate management. This stance follows discussions prompted by a memo from the Bruegel think tank, which suggested easing liquidity requirements for stablecoin issuers and exploring access to ECB financing.
During a meeting in Nicosia on May 22, financial officials were introduced to the proposal, which aimed to bolster the European stablecoin market, currently overshadowed by dollar-linked assets. However, ECB President Christine Lagarde and other regulatory representatives promptly opposed the initiative.
The ECB fears that an increase in stablecoin usage could undermine the stability of bank deposits, as funds shift from traditional banks to stablecoin issuers, thereby diminishing banks’ funding sources. This shift could also lead to disintermediation, making it more difficult for banks to attract deposits and issue loans.
Earlier this month, Lagarde had already voiced her disapproval of euro stablecoins, advocating instead for tokenized bank deposits that would retain the security of conventional accounts while leveraging the advantages of distributed ledger technology.
Potential for Digital Dollarization
Bruegel has cautioned that imposing stricter regulations on stablecoins within the EU compared to the US could drive activity outside the EU and exacerbate "digital dollarization." While some central banks have minimized this risk, others have proposed banning the redemption of stablecoins in both regions to safeguard local issuers’ reserves.
The European Commission is currently evaluating the MiCA regulation, set to take effect in 2024, which mandates that stablecoin issuers maintain a substantial portion of their reserves in liquid assets and bank deposits. In contrast, the GENIUS Act passed in the US in 2025 establishes less stringent requirements and aims to reinforce the dollar’s global position through regulated USD tokens.
According to Bruegel, the stablecoin market has surged by approximately one-third over the past year, now totaling $300 billion, although euro-pegged tokens represent a mere 0.3% of this market. The largest euro stablecoin, EURC from Circle, ranks around 20th in market capitalization among stablecoins. Notably, Europe accounted for 38% of global stablecoin transactions in the last quarter of 2025.
In April, the ECB also entered into agreements with three European organizations to advance the standardization of payments for the digital euro.
