ECB Pushes Back Against Euro Stablecoin Expansion on Financial Stability Concerns

The European Central Bank has pushed back against efforts to expand euro-denominated stablecoins, citing concerns that broader issuance could undermine bank deposits and complicate monetary policy.

Cointelegraph, citing Reuters, reported on May 23 that the ECB conveyed its opposition to proposals for expanding euro stablecoins at a meeting of European Union finance ministers in Nicosia, Cyprus.

The discussion stemmed from a policy paper by Brussels-based think tank Bruegel. The report argued that Europe should ease liquidity rules for issuers and consider granting them access to ECB liquidity support to strengthen the competitiveness of euro stablecoins.

According to the report, European users account for about 38% of global stablecoin transactions. Yet euro stablecoins represent just 0.3% of global stablecoin supply. Circle's EURC, the largest euro stablecoin, ranks 87th by market capitalization. It remains far smaller than dollar-denominated stablecoins such as Tether's USDT and USDC.

Despite their small size, the ECB appears wary of the expansion of stablecoins pegged to the euro. Reuters reported that ECB President Christine Lagarde told the meeting wider stablecoin adoption could weaken banks' deposit base and put pressure on the stability of Europe's financial system.

The ECB believes that if customer funds move from bank deposits into stablecoins, banks' funding costs could rise and the effectiveness of central bank interest-rate policy could weaken. The central bank has also taken a negative view internally on extending central-bank-level liquidity support to stablecoin issuers, according to the report.

Lagarde also stressed that Europe should prioritize building tokenized financial infrastructure based on central bank money instead of stablecoins. She pointed to the Eurosystem's inter-institutional settlement project Pontes and Appia, a roadmap linking tokenized finance, as alternative models.