In a speech at the Bank of Spain’s LatAm Economic Forum in Madrid, European Central Bank (ECB) President Christine Lagarde cautioned against adopting privately-issued euro-denominated stablecoins, which currently dominate with 98% market share from dollar-pegged tokens. Despite the popularity of USD stablecoins globally, Lagarde emphasized that Europe should develop central bank-backed tokenized settlement systems instead of copying the U.S. model.
Lagarde argued that the technological advantages claimed by stablecoins can be achieved through central bank infrastructure while highlighting the financial risks posed to stability. Her remarks come amid plans from Qivalis, a group involving 12 major European banks like ING and UniCredit, to launch a privately-issued digital euro this year due to concerns over dollarization.
Qivalis CEO Jan-Oliver Sell told CoinDesk that without a robust on-chain euro with adequate liquidity, the U.S. dollar remains the alternative, posing risks to Europe’s financial and digital independence. Lagarde reiterated her concerns about the potential instability from stablecoins during market stresses, referencing the March 2023 collapse of Silicon Valley Bank when Circle revealed $3.3 billion in USDC reserves were affected, briefly causing its stablecoin to de-peg.
“At scale, such dynamics can transmit stress to the underlying asset markets,” Lagarde said. “The promise of par redemption depends on market confidence that can vanish during financial instability—mass redemptions could exacerbate this deterioration.” She warned of feedback loops between redemptions and asset markets, especially when non-bank issuers are involved.
Lagarde highlighted the risks posed by the dominance of U.S. dollar-pegged stablecoins like TetherUSDT$0.9997 and Circle USDC, which control nearly 90% of the market, growing from $10 billion to $310 billion in six years. She stressed that Europe must develop euro-denominated stablecoins or risk digital dollarization and loss of monetary sovereignty.
Lagarde urged EU nations to back central bank digital currency (CBDC) development, stating, “We must build public infrastructure for alternative instruments like stablecoins within a framework anchored by central bank money.” She mentioned the ECB’s plan for a digital euro by 2029, contingent on necessary regulations adopted by 2026, with preparatory steps possibly starting in mid-2027.