Lagarde rejects euro stablecoins, warns $300bn market threatens ECB policy transmission

European Central Bank President Christine Lagarde rejected calls for the euro area to promote euro-denominated stablecoins on Friday, warning that a market now worth more than $300 billion globally poses risks to financial stability and would narrow the channel through which ECB interest rate decisions reach firms and households.

Speaking at the Banco de Espana Latam Economic Forum in Roda de Bara, Spain, Lagarde said the case for promoting euro-pegged stablecoins was “far weaker than it appears,” drawing a sharp line between the ECB’s infrastructure-first approach and the U.S. strategy of using stablecoins to extend dollar dominance.

The global stablecoin market has grown from less than $10 billion six years ago to more than $300 billion today, with nearly 98 per cent of tokens pegged to the U.S. dollar. Tether and Circle control the bulk of issuance. The U.S. GENIUS Act, advancing through Congress, explicitly frames stablecoin expansion as a tool to cement the dollar’s global reach and sustain demand for U.S. Treasuries.

Lagarde acknowledged that euro stablecoins operating under the EU’s Markets in Crypto-Assets Regulation, which took effect in 2024, could generate additional demand for euro-area safe assets, compress sovereign yields and extend the euro’s international reach. But she argued two risks make the trade-off unfavourable.

The stability risk

The first is financial stability. Stablecoins are private liabilities whose backing can come under sudden pressure during periods of stress. Lagarde noted that when Silicon Valley Bank collapsed in March 2023, Circle disclosed that $3.3 billion of USDC’s reserves were held there. During that window, USDC briefly traded at $0.877, more than 12 cents below its one-dollar peg.

“These trade-offs outweigh the short-term gains in financing conditions and international reach that euro-denominated stablecoins might provide,” Lagarde said.

The second concern is monetary policy transmission. In the euro area, banks remain the primary channel through which ECB rate decisions reach firms and households. If retail deposits migrate into non-bank stablecoins and return to banks as more expensive wholesale funding, that channel narrows.

ECB research published in March 2026, Working Paper No. 3199, found that large-scale deposit substitution would weaken bank lending and monetary policy pass-through. The effect is more pronounced in bank-heavy economies such as the euro area than in the United States.

European rules under MiCAR require stablecoin issuers to hold at least 30 per cent of reserve assets in bank deposits, with the remainder in low-risk, highly liquid instruments such as government bonds. Lagarde signalled that even this framework does not fully address the transmission risk.

A split in Frankfurt

Lagarde’s position puts her at odds with Bundesbank President Joachim Nagel, also a member of the ECB Governing Council. In a keynote at the New Year’s Reception of AmCham Germany on 16 February, Nagel expressed support for euro-denominated stablecoins.

“I also see merit in euro-denominated stablecoins, as they can be used for cross-border payments by individuals and firms at low cost,” Nagel said at the time.

Bundesbank board member Michael Theurer told Reuters this week that tokenised deposits and stablecoins were both “crucial,” though he acknowledged the risks associated with the latter. The European Commission and the French government have also backed euro stablecoins as a tool for strengthening the euro’s international standing.

The divergence reflects a broader debate inside the Eurosystem over how to respond to dollar stablecoin dominance and the risk of what Lagarde called “digital dollarisation.” It echoes the internal divisions that surfaced ahead of the ECB’s June policy meeting, where French and German governing council members clashed over the pace of rate adjustments.

What the ECB is building instead

Rather than matching U.S. stablecoin policy, Lagarde pointed to the Eurosystem’s own infrastructure plans. The Pontes project, launching in September 2026, will link distributed ledger platforms to TARGET, the ECB’s existing settlement system, allowing DLT-based transactions to settle in central bank money.

The Appia roadmap, published in March 2026, sets a path to a fully interoperable European tokenised financial ecosystem by 2028. Lagarde framed the choice as one of architecture, not pace.

“Our task is not to replicate instruments developed elsewhere, but to build the foundations and the infrastructure that serve our own objectives, so that we can harness the benefits of innovation without importing the fragilities,” she said.

The ECB president also singled out tokenised commercial bank deposits as a safer alternative to stablecoins, arguing they could circulate on blockchain rails while remaining anchored in the regulated banking system.

What comes next

European banks and payment firms that have already begun preparing regulated euro stablecoin products under MiCAR, including Societe Generale, may now face closer scrutiny from Frankfurt. The ECB’s stance signals a preference for central bank-anchored settlement over private alternatives, a position that diverges not only from Washington but from parts of its own Governing Council.

The debate lands as institutional interest in tokenised assets accelerates. BlackRock filed for two tokenised money-market funds on Ethereum this week, including a $6.1 billion digital share class, and the tokenised real-world asset market has crossed $30 billion, up more than 1,000 per cent from early 2024.

For now, Lagarde has made the ECB’s position clear: Europe will build its own rails rather than ride someone else’s.