At the Banco de España LatAm Economic Forum in Roda de Bará, Spain, ECB President Christine Lagarde expressed skepticism on Friday regarding the push for euro stablecoins. She argued that such instruments are ‘not an efficient way’ to enhance the euro’s global standing and advised against emulating U.S. strategies.
Lagarde noted that the worldwide stablecoin market, valued at over $317 billion with nearly 98% denominated in U.S. dollars, has prompted policy considerations globally. Despite acknowledging potential benefits like increased demand for euro-area safe assets and reduced sovereign yields temporarily, she highlighted ‘structural weaknesses’ in using stablecoins as a settlement foundation.
The first concern is financial instability; stablecoins are private liabilities reliant on credible backing, susceptible to sudden redemption pressures when confidence declines. This was evidenced by Circle’s near-depeg during the March 2023 Silicon Valley Bank collapse, where $3.3 billion of USDC reserves were affected, sending its value down to $0.877.
Secondly, Lagarde warned about the impact on monetary policy transmission. Large-scale migration to non-bank stablecoins might weaken bank lending and diminish the effectiveness of policy rate adjustments in Europe’s economy, where banks are primary credit providers.
James Brownlee, CEO of t-0, a Tether-backed stablecoin firm, told Decrypt that Europe risks lagging as the U.S. consolidates dollar stablecoin dominance through legislative action. He criticized the ECB’s response as merely theoretical, with over $300 billion in USD stablecoins already circulating globally.
Brownlee suggested that without regulatory compliance acceptance for stablecoins, investors might question the ultimate objective of these efforts. Mouloukou Sanoh, CEO of MANSA, emphasized to Decrypt that not pursuing euro stablecoin development could weaken the EU’s position in cross-border payments and potentially diminish the euro’s role if dollarized markets prevail.
In February, ECB Governing Council member Joachim Nagel mentioned that euro-pegged stablecoins could facilitate cost-effective cross-border transactions for individuals and firms while protecting the eurozone from dollar-denominated alternatives. The ECP recently partnered with European standards bodies to foster digital euro payment infrastructure using open technical standards, reducing reliance on proprietary systems.
Lagarde concluded by reaffirming Europe’s commitment to building its own financial infrastructure rather than replicating models developed elsewhere.