ECB President Christine Lagarde discusses the roles of stablecoins, their functions, risks, and Europe’s approach to building a resilient financial infrastructure aligned with monetary policy and technological innovation.
Christine Lagarde, President of the European Central Bank, delivered a speech at the Banco de España LatAm Economic Forum in Roda de Bará, Spain, addressing the rapid growth of stablecoins and their implications for financial stability and monetary sovereignty.
Stablecoins have expanded from less than USD 10 billion six years ago to over USD 300 billion today, mainly denominated in US dollars and controlled by two issuers, Tether and Circle. As their adoption increases, concerns about financial stability and policy implications have grown, prompting regulatory responses such as the EU’s Markets in Crypto-Assets Regulation (MiCAR) in 2024.
Lagarde emphasized the importance of distinguishing between the two main functions of stablecoins: a monetary function—extending the reach of reserve currencies—and a technological function—enabling efficient transaction settlement on distributed ledger technology (DLT). She argued that conflating these functions leads to misguided policy debates.
Initially designed to address crypto price volatility, stablecoins now serve to facilitate cross-border payments and reduce frictions in holding currencies outside their jurisdictions. They also underpin technological advances like atomic settlement, which improves efficiency and reduces settlement risk in tokenised financial markets.
However, Lagarde highlighted risks associated with euro-denominated stablecoins, including financial stability concerns and potential impacts on monetary policy transmission. She warned that stablecoins are private liabilities whose stability depends on backing credibility, which can be compromised during stress, and that large-scale substitution of bank deposits could weaken the transmission of interest rate decisions.
Regarding technological infrastructure, she noted Europe’s fragmented financial markets and the potential of DLT to foster integration. The Eurosystem is developing public infrastructure, such as the Pontes project and the Appia roadmap, to enable secure, interoperable, and central bank money-based settlement, reducing reliance on foreign private stablecoins.
Lagarde concluded that Europe’s focus should be on building foundational infrastructure and safe assets rather than replicating US or other models. She emphasized that a resilient, integrated system anchored by central bank money is essential to harness innovation’s benefits while mitigating vulnerabilities.
For more information, visit the official ECB press release: ECB Press Release.
