ECB’s Lagarde Says Euro Stablecoins Are “Not an Efficient Way” to Strengthen the Currency

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European Central Bank (ECB) President Christine Lagarde said Friday that euro-denominated stablecoins could undermine the ECB’s monetary policy transmission and amplify financial instability. The remarks put the central bank at odds with the European Commission and several euro zone governments that view euro stablecoins as a tool for boosting the currency’s international reach.

Lagarde Says the Case for Euro Stablecoins Is “Far Weaker Than It Appears”

Speaking to an audience in Spain, Lagarde argued that the trade-offs of euro-pegged stablecoins outweigh their potential benefits in financing conditions and international appeal.

“These trade-offs outweigh the short-term gains in financing conditions and international reach that euro-denominated stablecoins might provide,” Lagarde said. “If we want to strengthen the international appeal of the euro, stablecoins are not an efficient way of doing so.”

Lagarde cited two specific risks. First, stablecoins are subject to runs during market turmoil. She pointed to the drop in USD Coin’s value during the collapse of Silicon Valley Bank in March 2023 as an example. Second, she said large-scale substitution of bank deposits for stablecoins would weaken the ECB’s ability to transmit interest rate policy across the economy, citing the central bank’s own research.

Lagarde Favors Tokenized Bank Deposits Over Stablecoins

Rather than euro stablecoins, Lagarde singled out tokenized commercial bank deposits as a better route for bringing the euro onto blockchain infrastructure. She argued that tokenized deposits offer the same on-chain functionality while remaining inside the regulated banking system and preserving the ECB’s monetary policy channels.

Stablecoins hold reserves in a mix of bank deposits and liquid instruments such as government bonds, but they sit outside the traditional banking relationship between depositors and lenders. Tokenized deposits keep that relationship intact while adding blockchain-based settlement and transfer capabilities.

Bundesbank board member Michael Theurer struck a more balanced tone in a Reuters interview this week, saying both tokenized deposits and stablecoins were “crucial,” while acknowledging the risks associated with stablecoins.

ECB Position Conflicts With France, SocGen, and Euro Zone Ministers Backing Stablecoins

Several major euro zone institutions and governments have been moving in the opposite direction. A group of large European banks, including Société Générale, have been developing euro-pegged stablecoins.

France’s finance minister has publicly called for euro-based stablecoins. Euro zone finance ministers have discussed stablecoins alongside joint debt issuance as ways to strengthen the euro’s international standing.

Under Europe’s MiCA regulation, stablecoin issuers must hold at least 30% of reserve assets in bank deposits, with the remainder in low-risk, highly liquid instruments such as government bonds. That framework was designed to make euro stablecoins viable within a regulated structure, and the banks building these products are working within it.

Lagarde’s comments suggest the ECB sees the framework as insufficient to prevent the monetary policy risks she described, even if the products meet MiCA’s reserve and liquidity requirements.