ECB Pushes Back Against Euro Stablecoin Plans Over Financial Stability Concerns

European Central Bank warned EU finance ministers that expanding euro stablecoin issuance could weaken bank lending activity and complicate the implementation of monetary policy.

European Central Bank warned EU finance ministers on Friday that proposals to expand euro stablecoin issuance could weaken bank lending and complicate monetary policy, according to three sources cited by Reuters.

The pushback followed a policy paper prepared by Brussels-based think tank Bruegel, whose authors presented their proposals during the two-day informal meeting of the Economic and Financial Affairs Council in Nicosia, Cyprus. The paper called for relaxed liquidity requirements for stablecoin issuers and potentially granting them access to ECB funding, arguing that such measures were necessary for the euro stablecoin market to compete with dollar-backed rivals.

Europeans account for 38% of global stablecoin transactions, yet euro-denominated tokens make up only 0.3% of the total supply, according to the policy paper. EURC from Circle, the largest euro stablecoin, ranks just 12th globally, based on data from CoinMarketCap.

The central question during the Nicosia meeting was whether Europe is willing to close that gap strongly enough to extend central bank-style support to stablecoin issuers. However, the answer from the European Central Bank, at least for now, appears to be no.

ECB Warns Euro Stablecoins May Threaten Banking Stability

Christine Lagarde led the resistance, warning that stablecoin issuance makes bank deposits less stable by shifting buyers’ funds into issuers’ accounts, according to Reuters. At scale, policymakers fear this could accelerate disintermediation, increase bank funding costs and weaken the ECB’s ability to manage interest rates.

Several central bankers at the meeting also openly questioned the Bruegel proposal to position the European Central Bank as a lender of last resort for stablecoin firms, a role currently reserved for regulated banks, according to the report.

In a speech delivered earlier this month at the Banco de España LatAm Economic Forum in Spain, Christine Lagarde argued that euro stablecoins could create additional demand for euro-area safe assets, but warned that the trade-offs, including financial stability risks, redemption pressures and weaker monetary policy transmission, outweigh the potential benefits.

Instead of stablecoins, Christine Lagarde pointed to tokenized financial infrastructure backed by central bank money as Europe’s preferred path, citing the Eurosystem’s Pontes project for wholesale settlement and the Appia roadmap for interoperable tokenized finance.

EU Central Bankers Downplay Fears of Digital Dollarization

The Bruegel authors warned that stricter EU rules compared with the US could accelerate digital dollarization by pushing activity outside the bloc. However, that concern was largely dismissed by central bankers at the meeting, with several instead calling for restrictions on European redemptions of both US- and EU-issued stablecoins to protect against reserve runs, according to the Reuters report.

The debate comes as the EU reviews its Markets in Crypto-Assets framework, which requires stablecoin issuers to maintain large reserves in liquid assets, unlike the lighter-touch US GENIUS Act.