Lagarde: Euro stablecoins could threaten banks, policy

At the Banco de España LatAm Economic Forum, ECB President Christine Lagarde warned euro-denominated stablecoins could threaten bank stability and complicate the European Central Bank’s ability to conduct monetary policy.

Lagarde noted stablecoins have shifted from a marginal topic to a core regulatory concern as adoption grows and ties with traditional finance deepen. She said risks to financial stability have become clearer in parts of Latin America and Africa and are now part of policy discussions in advanced economies.

Total stablecoin supply exceeds $300 billion and remains concentrated in a few issuers, primarily Tether and Circle. More than 90% of stablecoins are denominated in U.S. dollars. Euro-denominated tokens are a small share: Circle’s EURC is the largest euro token at roughly $543 million in supply, and euro-based stablecoins rose about 48% over the past year from a low base.

Under the EU Markets in Crypto-Assets regulation, or MiCAR, issuers must hold backing for tokens in bank reserves. Lagarde warned that requirement ties stablecoins to individual bank balance sheets and can expose token holders to bank-specific failures. She cited the example of USDC being affected after Circle disclosed $3.3 billion held at Silicon Valley Bank.

Lagarde flagged risks from cross-border issuance and mismatched protections. When a stablecoin is issued jointly by EU and non-EU entities, MiCAR’s safeguards apply only to the EU issuer. “In a run, investors will naturally seek to redeem where protections are strongest — which is likely to be the EU, where MiCAR also prohibits redemption fees,” Lagarde warned. That dynamic could concentrate redemption pressure on Euro Area banks and create stress for lenders.

Those pressures could reduce banks’ capacity to lend and complicate how the ECB manages interest rates and liquidity. Lagarde contrasted the euro-area situation with the U.S., where deeper capital markets may absorb some displacement of bank lending and allow a larger stablecoin presence without the same strain on commercial banks.

Most euro tokens are fiat-backed rather than crypto-collateralized. Some European banks and payment firms are testing custody and operational models for stablecoins. MiCAR, which entered into force in 2024, aims to limit systemic risks by imposing issuer safeguards, monitoring liquidity flows and restricting certain activities. The ECB has studied stablecoins for years and continues to reassess their economic effects as adoption and links with traditional finance expand.