ECB warns euro stablecoins could drain bank deposits

The European Central Bank told EU finance ministers at meetings in Nicosia that rapid expansion of euro-denominated stablecoins could draw retail savings away from commercial banks, shrinking the deposit base that supports bank lending and weakening the transmission of ECB interest-rate policy.

ECB officials explained that when households and businesses park funds in privately issued stable tokens rather than bank accounts, banks lose deposits used to fund loans. Fewer deposits can reduce banks’ capacity to extend credit across the euro area, making changes in the ECB’s policy rate less effective at influencing borrowing costs.

A Brussels think tank circulated a paper at the meetings arguing that strict rules under the Markets in Crypto-Assets (MiCA) framework have constrained European stablecoin issuers and allowed dollar-backed tokens to gain market share. The paper urged lighter liquidity requirements for issuers and suggested possible access to central bank funding to help European tokens compete. The paper described the trend as “digital dollarisation.”

ECB officials reiterated their preference for tighter implementation of MiCA and for a public option to preserve monetary policy effectiveness. Nine lenders are preparing to launch a euro stablecoin under MiCA in 2026, reflecting growing private-sector interest in tokenised cash equivalents.

ECB President Christine Lagarde has promoted a central bank digital currency as an alternative, calling the development of a digital euro “a strategic priority for European financial infrastructure.” Officials say a central bank digital currency would keep retail savings inside the regulated banking system and support the bank’s ability to transmit policy rates.

Finance ministers face a policy choice between easing rules to support European private issuers, with a risk of deposit migration, or maintaining tighter regulation and backing a central bank digital currency to protect banking and monetary stability. Their decision will affect the future shape of EU digital-asset rules and the role of the euro in cross-border transactions.