ECB Rejects Looser Euro Stablecoin Rules, Warns of Banking and Monetary Policy Risks

TLDR:

• The ECB warned that broader euro stablecoin issuance could drain bank deposits and weaken lenders’ funding capacity.
• Bruegel proposed easing liquidity rules and granting stablecoin firms access to ECB funding to counter dollar dominance.
• Euro stablecoins hold just 0.3% of total supply, while overall stablecoin market reached $300 billion in 2024.
• The EU’s MiCAR imposes stricter reserve rules than the US GENIUS Act, raising fears of regulatory-driven capital flight.
  

ECB stablecoin rules remain a contentious topic in European financial policy circles. The European Central Bank has pushed back against proposals to ease regulations for euro-denominated stablecoins.

ECB President Christine Lagarde and fellow central bankers voiced strong concerns at an informal gathering of EU finance ministers in Nicosia, Cyprus, on May 22.

The meeting, which brought together top financial policymakers, exposed a clear divide between regulatory caution and calls for market expansion.

ECB Sounds Alarm on Financial Stability

At the Cyprus meeting, Brussels-based think tank Bruegel presented a paper proposing lighter liquidity requirements for crypto issuers.

The paper also suggested giving stablecoin firms access to ECB funding. The goal was to help Europe compete in a market currently dominated by dollar-backed tokens.

Central bankers resisted the idea firmly. The ECB’s core concern is that stablecoin issuance makes bank deposits less stable.

When a buyer acquires a stablecoin, the money moves to the issuer’s account, removing it from the bank. At scale, this process could raise funding costs and reduce banks’ capacity to lend.

Lagarde questioned Bruegel’s suggestion to make the ECB a lender of last resort for stablecoin firms — a role currently reserved for regulated banks.

Earlier this month, she argued instead for tokenised commercial bank deposits, describing them as combining traditional account safety with the speed and programmability of distributed-ledger technology. Several central bankers at the meeting openly echoed that scepticism.

Finance ministers in attendance held mixed views on the proposal. There was no consensus, reflecting the complexity of the debate across EU member states.

Digital Dollarization and the Regulatory Gap

Bruegel economists Lucrezia Reichlin, Bo Sangers, and Jeromin Zettelmeyer warned that stricter EU rules, relative to the US, could push activity outside the bloc.

They cautioned that tighter regulation risks deepening what they termed “digital dollarisation.” Central bankers at the meeting, however, were unconvinced by that argument.

Several called for rules preventing holders of stablecoins — whether issued in the EU or the US — from redeeming tokens on European soil. Such redemptions could expose European issuers to reserve runs.

The EU’s Markets in Crypto-Assets Regulation (MiCAR), in force since 2024, currently requires issuers to hold large reserves in liquid assets.

The US GENIUS Act, adopted in 2025, takes a lighter approach, designed to advance the dollar’s global reach through regulated dollar-backed tokens.

Euro-denominated stablecoins currently hold just 0.3% of total stablecoin supply, with Circle’s EURC ranking only 20th globally. Overall stablecoin supply grew by roughly one-third last year to reach $300 billion.

A consortium of 37 European banks under the Qivalis project plans to launch a euro stablecoin later this year. EU finance ministers also confirmed continued progress on the digital euro, which the ECB targets for a 2029 launch.

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