European Central Bank (ECB) President Christine Lagarde has spoken out against the need for private issuance of euro-pegged stablecoins, even in the face of a market 98% dominated by dollar-pegged tokens.
Despite the rapid global adoption of USD stablecoins, Largarde argued that Europe should focus on building a token settlement infrastructure anchored in central bank currency rather than simply replicating the U.S. stablecoin model in a speech Friday at the Bank of Spain’s Latin American Economic Forum in Madrid.
“The case for promoting euro-denominated stablecoins is much weaker than it seems,” Lagarde said, arguing that the technological case for stablecoins can be replicated by central bank infrastructure, while their monetary function introduces unacceptable risks to financial stability.
The comments come as Qivalis, a consortium of 12 of Europe’s largest banks including ING, BBVA, BNP Paribas, Danske Bank and UniCredit, announced plans to launch a privately issued digital euro, not a CBDC, later this year, on the same premise that Europe faces dollarization risks.
“If we don’t have an on-chain euro with significant liquidity, then the only alternative is the US dollar,” Jan-Oliver Sell, CEO of Qivalis, told CoinDesk. “This represents a real risk for Europe’s financial and digital sovereignty.”
Lagarde reiterated her warnings that stablecoins could create risks to financial stability during times of market stress. She referenced the collapse of Silicon Valley Bank in March 2023, when Circle revealed that $3.3 billion of its USDC reserves were in the bank, causing its stablecoin to briefly unpeg.
“On a large scale, such dynamics can transmit stress to underlying asset markets. The promise of redemption at par depends on market confidence itself which can disappear when financial stability deteriorates – and a massive redemption can accelerate this deterioration,” she said on Friday.
“As stablecoin usage increases, so does the potential for feedback loops between redemptions and asset markets, particularly where issuers are not banks.”
The growing global dominance of US dollar-pegged stablecoins issued by Tether and Circle poses risks to the European financial system, Lagarde said on Friday.
Lagarde noted that circulation in six years increased from $10 billion to $310 billion. However, she expressed concern that almost 90% of the market is controlled by two issuers – Tether. and USDC Circle).
She said that in Europe, debate is intensifying over the urgent need for the bloc to remain relevant.
“Europe must respond by promoting its own euro-denominated stablecoins,” she said. “Otherwise, it will face a future of digital dollarization and a loss of monetary sovereignty.” Lagarde calls on EU countries to support the development of a CBDC. “We need to build the public infrastructure that will allow alternative instruments, such as stablecoins and other forms of tokenized money, to operate within a framework anchored by central bank money,” she said.
Late last year, Lagarde announced the ECB’s plans for a “digital euro by 2029, assuming that European co-legislators adopt the necessary regulations by 2026”, adding that preparatory steps, including pilot exercises and initial transactions, could begin as early as mid-2027.
