European Central Bank President Christine Lagarde has pushed back against calls for the promotion of euro-denominated stablecoins as a response to dollar dominance in digital finance, arguing that the risks they carry outweigh the short-term benefits.
Lagarde Warns Euro Stablecoins Risk Instability as ECB Builds Tokenized Infrastructure
8 May 2026 - 12:59 CEST
By Matt Neill
Speaking at the Banco de España LatAm Economic Forum in Roda de Bará on 8 May, Lagarde argued that stablecoins perform two distinct functions that are routinely conflated: extending the monetary reach of a currency across borders, and providing a native settlement asset for tokenized financial markets.
Once those functions are separated, she said, the case for euro-denominated stablecoins weakens considerably.
Financial stability at stake
On the monetary side, Lagarde pointed to two material risks. Stablecoins are private liabilities whose stability depends on the credibility of their backing and can face sudden redemption pressure under stress.
She cited the March 2023 collapse of Silicon Valley Bank, when Circle disclosed that $3.3bn of USDC reserves were held at the failed institution, briefly sending the token below its $1 peg to $0.877.
At scale, she said, such dynamics risk transmitting stress directly to underlying asset markets. Large-scale deposit migration into non-bank stablecoins would also narrow the channel through which ECB rate decisions reach firms and households, weakening the pass-through from policy rates to the real economy.
"Taken together, these trade-offs are significant. They outweigh the short-term gains in financing conditions and international reach that euro-denominated stablecoins might provide. If we want to strengthen the international appeal of the euro, stablecoins are not an efficient way of doing so," she said.
"The best solution remains the same: more integrated capital markets through the savings and investments union, and over time a safe asset base that matches the scale of our ambitions for the euro's international role."
Central bank money as settlement anchor
On the technological side, Lagarde acknowledged that distributed ledger technology offers a genuine opportunity to address Europe's highly fragmented financial market infrastructure, which comprises a multitude of trading venues, central clearing counterparties and securities depositories, compared with a single central securities depository in the US.
Stablecoins have two structural weaknesses as a settlement foundation, however, she added. They cannot offer the unconditional finality of central bank money, and their proliferation risks fragmenting the very interoperable environment that tokenized finance is designed to create.
The ECB's answer is infrastructure rather than imitation. From September, the Eurosystem's Pontes project will link distributed ledger platforms to TARGET, its existing settlement system, enabling DLT-based transactions to settle in central bank money from the outset. The Appia roadmap published in March sets out a path to a fully interoperable European tokenized financial ecosystem by 2028.
The remarks stand in contrast to the position of Bundesbank president Joachim Nagel, who said in February that the EU should actively promote euro-pegged stablecoins for retail payments while the digital euro project remains delayed until at least 2029.
