Stablecoins won’t strengthen global role of euro, ECB’s Lagarde says

European Central Bank (ECB) President Christine Lagarde said stablecoins are not Europe’s best route to strengthening the euro’s international role, pushing back against calls to respond to US dollar-backed stablecoins with euro-denominated tokens.

Speaking on Friday at the Banco de España LatAm Economic Forum in Roda de Bará, Spain, Lagarde made several comments on the role of stablecoins in the European economy. “It is no longer about whether stablecoins should exist, but whether jurisdictions can afford to be without them,” she said, arguing that the case for promoting euro stablecoins becomes less clear once their two core functions are separated.

“The benefits attributed to them [stablecoins] rest on two distinct functions — a monetary function and a technological function — that are systematically conflated in the current debate,” Lagarde said.

The speech lays out one of Lagarde’s clearest arguments yet against treating euro stablecoins as Europe’s answer to US dollar-backed stablecoins, which currently dominate the market with a roughly 98% share. The US has been promoting dollar stablecoins as a way to support the US dollar as a global reserve currency. Instead, she said Europe should build tokenized financial infrastructure anchored by central bank money, including the Eurosystem’s Pontes project for wholesale settlement and the Appia roadmap for an interoperable European tokenized finance ecosystem.

Monetary function: Possible upside, but clear trade-offs

However, Lagarde said that euro-denominated stablecoins operating under the European Union’s Markets in Crypto-Assets Regulation (MiCA) “could generate additional global demand for euro-area safe assets.”

She stressed that this comes with significant trade-offs, including financial stability risks such as fund runs and reserve fragility, and weaker monetary policy transmission if deposits move out of banks.

Source: Christine Lagarde

Lagarde pointed to the 2023 collapse of Silicon Valley Bank, when Circle’s USDC stablecoin briefly fell below its peg after revealing exposure to the bank, as an example of how quickly confidence can weaken.

She said such episodes show how redemption pressures can spill into underlying asset markets and, as stablecoin use grows, create feedback loops between redemptions and prices, particularly where issuers are not banks.

Technology function: Stablecoins are not the only solution

On the technology side, Lagarde acknowledged the role of stablecoins in cross-jurisdictional financial market infrastructure that is accessible “without relying on a maze of legacy intermediaries.”

However, she said that this technological function is not unique to stablecoins. Other forms of tokenized money, including commercial bank deposits or central bank money, could perform the same role within distributed ledger systems, Lagarde said.

“The answer […] does not lie in rejecting technology or discouraging stablecoins altogether. Instead, we must build the public infrastructure that will enable alternative instruments, such as stablecoins and other forms of tokenised money, to operate within a framework anchored by central bank money.”

Lagarde said the EU response is to facilitate wholesale settlement in central bank money through its Pontes project, which links distributed ledger platforms to the Eurosystem’s existing settlement infrastructure, allowing DLT-based transactions to be settled directly in central bank money.

Related: Stablecoin adoption to scale on back of big tech firms: Bitwise

She added that the Appia roadmap, published in March, goes further and outlines a plan for a fully interoperable European tokenized financial ecosystem by 2028.

“Europe knows which port it is sailing to,” she said, adding: “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.”

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