ECB pushes back on euro stablecoin proposals, citing financial stability risks

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Top euro stablecoins. Source: CoinMarketCap The question at the heart of the Nicosia meeting was whether Europe wants to close that gap badly enough to extend central bank-style support to stablecoin issuers. However, the ECB’s answer, for now, appears to be no. Related: MiCA Made Euro Stablecoins Safe but Too Small, Report Says ECB President Christine Lagarde led the resistance, warning that stablecoin issuance makes bank deposits less stable by transferring buyers’ funds to issuers’ accounts, according to Reuters. At scale, policymakers fear this accelerates disintermediation, raises bank funding costs and erodes the ECB’s ability to manage interest rates. Several central bankers at the meeting also openly questioned the Bruegel proposal to position the ECB as a lender of last resort for stablecoin firms, an arrangement currently reserved for regulated banks, per the report. In a speech at the Banco de España LatAm Economic Forum in Spain earlier this month, Lagarde argued that euro stablecoins could generate 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 benefits. Instead of stablecoins, Lagarde pointed to tokenized financial infrastructure anchored 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. Related: European Banks Back MiCA Euro Stablecoin to Rival Dollar Tokens The Bruegel authors warned that stricter EU rules compared to the US risked accelerating digital dollarization, pushing activity outside the bloc. However, central bankers at the meeting largely dismissed that concern, with several calling instead for restrictions on European redemptions of both US and EU-issued stablecoins to guard against reserve runs, according to the Reuters report. The debate comes as the EU reviews its Markets in Crypto-Assets (MiCA) regulation, which requires stablecoin issuers to hold large reserves in liquid assets, in contrast to the lighter-touch US GENIUS Act. Market Moves: Why is Ethereum Foundation selling? BTC futures warning signs More on the subject

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