Lagarde: Europe needs public infrastructure, not euro stablecoins
ECB President Christine Lagarde argued against promoting euro-denominated stablecoins, citing financial stability and monetary policy risks. Speaking at the Banco de España LatAm Economic Forum, she emphasized the need to separate stablecoin functions from instruments.
Two functions, one instrument
Stablecoins were initially designed to solve price volatility within the crypto ecosystem, anchoring their value to fiat money.
As they move beyond crypto, two distinct functions emerge.
The monetary function extends the global reach of reserve currencies by easing cross-border payment infrastructure access and simplifying holding currency outside its home jurisdiction.
Yield-bearing stablecoins, backed by Treasury bills, can indirectly make holders investors in US government debt, with systemic effects on T-bill yields.
The technological function enables transactions and settlement within emerging distributed ledger technology (DLT) infrastructure, allowing real-world assets to be tokenised.
Stablecoins serve as the native 'cash' for atomic settlement, removing settlement risk by design.
This dual role blurs boundaries, complicating policy.
The digital dollarisation debate
Stablecoins have rapidly grown to over USD 300 billion, overwhelmingly denominated in US dollars, with 90% controlled by two issuers.
Europe was early to regulate with MiCAR in 2024, aiming to contain financial stability risks.
The US, however, views its GENIUS Act as a tool to ensure continued global dollar dominance.
This has shifted the debate: should Europe promote euro-denominated stablecoins to avoid 'digital dollarisation' and a loss of monetary sovereignty?
Lagarde argues this conflates monetary and technological functions, obscuring their precise purpose.
Public infrastructure, not private tokens
Lagarde's analysis reveals the flawed premise behind calls for euro stablecoins.
Their inherent fragility poses financial stability risks and threatens monetary policy transmission, undermining money's singleness.
Europe must instead develop public DLT infrastructure, providing a stable anchor for tokenised money, not private, fragmented solutions.