ECB Cautions on Euro Stablecoin Expansion, Citing Banking Risks
EU Finance Ministers Debate Stablecoin Proposals and Banking Implications
By Francesco Canepa and Jan Strupczewski
NICOSIA, May 22 (Reuters) - The European Central Bank warned European Union finance ministers on Friday that proposals to issue more euro stablecoins could reduce bank lending and make controlling interest rates harder, three sources told Reuters.
Bruegel Think Tank's Proposal
Brussels-based economic think tank Bruegel prepared a paper for the EU's top financial policymakers that called for easing liquidity requirements for crypto issuers and potentially giving them access to ECB funding. The aim would be for Europe to grow a stablecoin market now dominated by dollar‑based tokens.
The Bruegel authors, Lucrezia Reichlin, Bo Sangers and Jeromin Zettelmeyer, presented the idea at an informal gathering of European Union finance policymakers in Nicosia, Cyprus, on Friday, the sources said.
ECB Concerns Over Financial Stability
Central Bankers' Immediate Resistance
ECB WORRIED ABOUT STABILITY AND POLICY
But they met immediate resistance from central bankers including ECB President Christine Lagarde, who worry that such moves make bank deposits more fickle, weakening an economically vital sector and the central bank's ability to engineer interest rates, sources said.
Potential Impact on Bank Lending
When a stablecoin is issued, the buyer's money is transferred to the account of the issuer, thereby becoming a less stable source of funding for the bank. At scale, policymakers fear this could accelerate disintermediation and, by raising funding costs, curb banks’ capacity to lend.
Finance ministers at the meeting had mixed views of the proposal, the sources said.
ECB as Lender of Last Resort?
Several central bankers openly questioned Bruegel's suggestion to turn the ECB into a lender of last resort for stablecoin firms -- an arrangement now reserved for the regulated banking sector.
Lagarde earlier this month expressed scepticism about euro stablecoins, arguing instead for tokenised commercial bank deposits. Those would combine traditional account safety with the speed and programmability of distributed‑ledger technology.
The Threat of Digital Dollarisation
Regulatory Divergence Between EU and US
THE THREAT OF DIGITAL DOLLARISATION
The Bruegel economists warned that more stringent EU regulation on stablecoins compared to the U.S. risked pushing activity outside the bloc and increasing "digital dollarisation".
Central bankers who took the floor during the meeting played down that fear.
Calls for Stronger EU Rules
Several reaffirmed calls for EU rules to prevent holders of stablecoins issued both in the bloc and the U.S. from redeeming their tokens in Europe, which could expose the European issuer to a run on reserves.
The commission is reviewing its Markets in Crypto-Assets Regulation (MiCAR), which has been in force since 2024 and requires stablecoin issuers to hold a large share of reserves in bank deposits and other liquid assets.
Comparison with US GENIUS Act
By contrast, the U.S. GENIUS Act, adopted in 2025, imposes lighter requirements, designed to support the global role of the dollar by promoting regulated dollar‑backed tokens.
Stablecoins: Uses and Risks
Current Use Cases
STABLECOINS: USES AND RISKS
Stablecoins are mainly used to make cross-border payments where a bank transfer would be more expensive -- a use that the ECB approves of -- or as a means to pay for other cryptocurrencies, such as bitcoin.
Risks and Market Growth
But they are not immune from risks as the blow-up of the TerraUSD token in 2022 shows.
A consortium of European banks under the Qivalis project has expanded to 37 institutions across 15 countries and aims to launch a euro‑denominated stablecoin later this year, following earlier, smaller initiatives from Societe Generale.
Stablecoin supply grew by roughly a third last year to $300 billion, according to Artemis data cited by Bruegel.
Euro Stablecoin Market Share
Euro-denominated stablecoins account for just 0.3% of total supply, with the largest – Circle’s EURC – ranking only 20th in the world.
Europe-based stablecoin transactions made up 38% of global transactions in the final quarter of 2025.
Future of Digital Euro and Payments Autonomy
The debate comes amid a broader push to strengthen Europe’s payments autonomy, including plans for a digital euro later this decade — an initiative that has itself faced resistance from banks worried it could shift deposits away from them.
EU finance ministers said at the meeting they would continue their work on the digital euro, which the ECB aims to launch in 2029.
(Editing by Cynthia Osterman)
