ECB Warns of Stablecoin Risks to European Financial Stability
The European Central Bank (ECB) has warned that the $300 billion stablecoin market could threaten financial stability in Europe. Most stablecoins, about 99.58%, are backed by the U.S. dollar. Dutch central bank Governor Olaf Sleijpen said this rise could affect the ECB’s monetary policy.
“If stablecoins in the US increase at the same pace, they will become systemically relevant,” Sleijpen told the Financial Times. He added that instability in these tokens might cause mass sell-offs of U.S. Treasuries. Sleijpen said the ECB would likely use financial stability tools first, but it’s unclear if interest rates would rise or fall.
Stablecoin Market Growth and European Challenges
The stablecoin market grew rapidly after the U.S. passed the GENIUS Act, which added federal oversight to stablecoin issuers. Dollar-pegged stablecoins surged by 48% in 2024. By comparison, euro-backed stablecoins are very small, with under $549 million in circulation—just 0.18% of the global market.
The European Systemic Risk Board (ESRB), led by ECB President Christine Lagarde, highlighted risks from stablecoins issued by multiple parties. The ESRB warned that mass redemptions could pressure European reserves and expose risks from overseas. They proposed banning structures where EU-regulated issuers hold reserves locally, but non-EU partners manage tokens abroad.
European Banks Plan Euro-Backed Stablecoin and Regulatory Changes
Nine major European banks aim to launch a euro-backed stablecoin by mid-2026. The banks include ING, UniCredit, CaixaBank, Danske Bank, SEB, Raiffeisen Bank International, Banca Sella, KBC, and DekaBank. The project targets licensing under the Markets in Crypto-Assets (MiCA) regulation in the Netherlands.
Floris Lugt, Digital Assets lead at ING, said, “It’s imperative that banks adopt the same standards.” The new stablecoin will offer fast, low-cost, 24/7 cross-border settlement. Pierre Gramegna, Managing Director of the European Stability Mechanism, emphasized the need for Europe to reduce reliance on U.S. dollar stablecoins.
Eurogroup President Paschal Donohoe mentioned that the ECB’s digital euro, expected by 2029, will modernize payments. Piero Cipollone, ECB Executive Board member, called the recent agreement on customer holding limits a “major breakthrough.”
The European Commission proposes shifting MiCA oversight from national authorities to the European Securities and Markets Authority (ESMA). Some industry groups warn this may create legal uncertainty. French officials argue that centralizing supervision will close current loopholes.
The European Parliament aims to finalize these rules by May 2026, with EU countries seeking agreement by the end of 2024. They want to reduce dependency on U.S.-based stablecoins and payment providers like Visa and PayPal.
