(May 8): European Central Bank President Christine Lagarde said that even euro-denominated stablecoins would create risks to financial stability and monetary-policy transmission, questioning the case for introducing such instruments.
While they could lower financing costs in the euro area and boost the common currency’s global pull, there are “significant” trade-offs, Lagarde said Friday in a speech.
“They outweigh the short-term gains in financing conditions and international reach that euro-denominated stablecoins might provide,” she said. “If we want to strengthen the international appeal of the euro, stablecoins are not an efficient way of doing so.”
Stablecoins, which are mostly pegged to the US dollar, have surged in popularity over the past year as a way to move money across borders and bypass traditional payment systems. Their rise has prompted questions over whether Europe needs its own version of the instruments.
Bundesbank President Joachim Nagel in February touted euro stablecoins. But an ECB working paper in March, which Lagarde referenced, warned that a widespread adoption would pose major risks to euro-area banks and the institution’s monetary sovereignty, particularly if linked to foreign currencies like the dollar.
While banks and payment firms in the currency bloc have stepped up efforts toward rolling out stablecoins, some global regulators and supervisors also worry about potential threats to financial stability.
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Lagarde, who’s pushing to speed the introduction of a digital euro, said that Europe’s task isn’t simply to “replicate instruments developed elsewhere”. She also highlighted the ECB’s work on wholesale settlement options.
“The best solution remains the same,” she said. “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.”
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