ECB warns euro stablecoins could drain bank funding

Euro stablecoins account for just 0.3 per cent of supply, yet the ECB told EU finance ministers on Thursday that encouraging them could erode bank funding. The warning sharpened a fight over how Europe wants to build digital payments while dollar-backed tokens still dominate the market.

In a Reuters report, ECB officials said looser rules for euro stablecoins could weaken credit creation and make monetary policy harder to steer. That leaves Frankfurt at odds with Bruegel economists, who argue Europe should make more room for privately issued euro tokens if it wants digital-money activity to stay inside the bloc.

ECB President Christine Lagarde struck the same note in a May 8 speech. She said the stablecoin market had grown to more than USD 300 billion and remained highly concentrated, with Tether and Circle accounting for nearly 90 per cent of supply.

“the case for promoting euro-denominated stablecoins is far weaker than it appears”

• Christine Lagarde, European Central Bank

For the ECB, the issue is not really crypto branding. It is the funding mix. If households and companies move part of their transaction balances from bank deposits into stablecoins, banks lose some of the cheap funding that supports lending. The central bank has also warned that redemption pressure in stressed markets could force issuers to sell reserve assets quickly and spill volatility back into the wider financial system.

The concern lands in a market where Europe already uses stablecoins heavily even without a real euro-token base. Reuters said the region accounted for 38 per cent of global stablecoin transactions in the fourth quarter of 2025, even as euro-denominated tokens still made up 0.3 per cent of total supply. A consortium called Qivalis, backed by 37 institutions across 15 countries, plans to launch a euro stablecoin later this year.

That is the policy split.

The policy split

Bruegel’s answer is that Europe should not treat private stablecoins as a threat by default. Its paper says issuers could hold reserves more safely and, in some cases, gain access to central-bank liquidity backstops, letting the bloc contain run risk without simply handing the field to dollar-backed rivals. The wider argument is strategic: rules that are too tight may shield banks in the short run while leaving European payments and tokenised finance more dependent on US currency rails.

The ECB is drawing the line elsewhere. Lagarde argued that tokenised commercial-bank deposits can deliver faster settlement and programmable payments without moving money outside the regulated banking perimeter. That view also fits the bank’s long-running push for a digital euro, which ministers are still discussing as a public option for retail payments rather than a private substitute for deposits.

The distinction is important for the ECB because tokenised deposits keep customer funds inside supervised banks and within existing liquidity rules, while stablecoins create a separate claim on reserve assets. In Frankfurt’s view, that is the difference between upgrading payments plumbing and changing the liability mix of the banking system.

Why it matters for crypto policy

For crypto firms, the message is that Brussels may support tokenisation, but not on terms that weaken bank balance sheets or dilute central-bank control over money. That stance could shape the next round of European debates over MiCA, reserve rules and access to payment infrastructure. It also tells would-be euro stablecoin issuers that a commercial case alone will not carry much weight if the prudential case looks thin.

The divide also leaves Europe some way from Washington, where policymakers have been trying to draft federal stablecoin rules that could bring banks, fintechs and token issuers into the same market. Europe is moving more cautiously. It wants tokenised payments, but with a tighter perimeter around who can create money-like claims in euros.

For banks, the speech is a reminder that the stablecoin debate is turning into a liability-side fight as much as a technology story. Private euro tokens could widen payment choice and keep more activity onshore, but the ECB is signalling that payments sovereignty will not be bought at the cost of deposit stability. Europe now faces a clearer choice: expand public and bank-based forms of digital money, or loosen the perimeter for private issuers and accept a bigger shift in how funding moves through the system.