ECB warns stablecoins threaten eurozone banks, euro

The ECB warns that dollar-pegged stablecoins threaten eurozone bank deposits, lending, and monetary policy, risking the euro’s global position and financial stability. Regulatory action is being considered.

The European Central Bank (ECB) has issued several warnings about the rapid rise of stablecoins—digital assets typically pegged to the US dollar—which now account for a market exceeding $300 billion. According to ECB reports, increased adoption of stablecoins is linked to a decline in retail bank deposits and reduced lending to businesses across the euro area. This trend, known as the deposit substitution effect, may force banks to depend more on costly and less stable wholesale funding, weakening their ability to support the real economy. The ECB also notes that over 95% of stablecoins are dollar-denominated, posing a risk to the euro’s global standing and threatening European monetary sovereignty. The regulator cautions that the dominance of non-euro stablecoins could undermine the effectiveness of monetary policy and the stability of the financial system. In response, the ECB is considering regulatory measures to address these risks and safeguard the euro, as the continued growth of stablecoins could further challenge the transmission of monetary policy and the funding structure of European banks.