Lagarde Fights Back: ECB Chief Sounds Alarm Over Euro Stablecoins’ Hidden Flaws

On Friday, ECB President Christine Lagarde dismissed the push for euro stablecoins, stating that this financial instrument is “not an effective method” to enhance the euro’s international influence—and that Europe should abandon attempts to replicate the American strategy.

Addressing the Banco de España LatAm Economic Forum in Roda de Bará, Spain, Lagarde recognized that the worldwide stablecoin market, currently valued at over $317 billion with nearly 98% tied to the U.S. dollar, has compelled advanced economies to reassess their policies.

The GENIUS Act, progressing through the U.S. Congress, is promoted by the Trump administration as a mechanism to guarantee “the ongoing global supremacy of the U.S. dollar” and to solidify demand for US Treasuries, Lagarde observed in her speech.

“The nature of the discussion has changed,” she remarked. “It’s no longer a question of whether stablecoins should be allowed, but whether countries can afford to be without them.”

Lagarde conceded that euro stablecoins might create additional worldwide demand for euro area safe assets and lower sovereign borrowing costs in the near term, but argued that the stablecoin model has “structural flaws as a basis for settlement,” emphasizing that any advantages are outweighed by at least two trade-offs she deemed “significant.”

The first concern is financial instability, since stablecoins are private obligations whose value relies on trustworthy backing and can experience sudden, self-amplifying redemption pressures when trust erodes.

She referenced Circle’s near-depeg during the Silicon Valley Bank failure in March 2023, when $3.3 billion of USDC reserves were held at the collapsed institution, briefly driving the coin’s value down to $0.877.

The second concern, she explained, involves monetary policy transmission, cautioning that large-scale movement of deposits into non-bank stablecoins could undermine bank lending and weaken the transmission of policy rates to the broader economy, especially in Europe, where banks are the primary source of credit.

“We understand the risks,” she stated. “And we don’t need to wait for a crisis to address them,” Lagarde said.

Industry pushback

James Brownlee, CEO of t-0, a Tether-supported stablecoin firm, told Decrypt that Europe risks losing ground as the U.S. rapidly moves to solidify dollar stablecoin dominance.

“The U.S. has enacted legislation, signed it into law, and established a regulatory framework that cements dollar stablecoin dominance,” Brownlee said, adding that “the ECB has responded with a speech explaining why Europe shouldn’t attempt to compete.”

“Even if the ECB’s theoretical arguments are sound, the market isn’t waiting for theory to become reality,” he continued, noting that over $300 billion is already circulating in USD stablecoins.

He cautioned that the message from “Europe’s top monetary policymaker” is alarming, stating that if “full regulatory compliance doesn’t make stablecoins acceptable,” then investors will wonder “what exactly are we working toward.”

He argued that Europe must not “welcome private investment through regulatory channels” only to “block it at the policy level.”

“Stablecoins reached a $300 billion market cap due to organic growth—a worldwide liquidity framework developed over many years,” he explained, noting that Lagarde “offers no plan” to achieve similar scale, and the euro’s position “won’t materialize automatically.”

“Failing to develop a euro stablecoin or expand the euro stablecoin ecosystem will damage the EU,” stated Mouloukou Sanoh, co-founder and CEO of MANSA, in an interview with Decrypt. He warned that a stablecoin market dominated by the dollar could lead to “a future where the euro is absent” from blockchain-based international transactions.

In February, Joachim Nagel, a member of the ECB Governing Council and President of the Bundesbank, remarked that euro-backed stablecoins “enable affordable cross-border transactions for both consumers and businesses” and could protect the eurozone from being overshadowed by dollar-linked tokens in global commerce.

Last month, the ECB partnered with three European standards organizations—ECPC, Nexo Standards, and the Berlin Group—to establish digital euro payment systems based on open technical standards. The bank stated this initiative would decrease Europe’s reliance on proprietary systems controlled by foreign card networks and global digital payment platforms.

“Europe understands its destination,” she declared. “Our mission isn’t to copy tools created elsewhere, but to develop the groundwork and systems that align with our specific goals.”