Lagarde: Stablecoins' dual functions, risks to euro sovereignty
ECB President Christine Lagarde argued that stablecoins' monetary and technological functions are conflated, posing risks to financial stability and euro sovereignty. She questioned the need for euro-denominated stablecoins, advocating for public digital infrastructure instead.
Unpacking stablecoin's dual nature
Stablecoins have rapidly grown from less than USD 10 billion six years ago to over USD 300 billion today, with nearly 90% denominated in US dollars and dominated by two issuers.
ECB President Lagarde highlighted their two distinct functions: monetary and technological.
The monetary function extends reserve currency reach by easing cross-border payment access and allowing easier holding of currency outside its home jurisdiction, with transaction flows reaching 7.7% of GDP in Latin America. The technological function enables native settlement on distributed ledger technology (DLT) for tokenised assets, facilitating atomic settlement and removing settlement risk.
This role is crucial for emerging financial infrastructure, as seen with tokenised money market funds doubling in market capitalisation in 2025 to €7 billion.
Lagarde noted that this blurring of functions makes policy navigation difficult.
Navigating the digital dollar debate
Stablecoins have quickly moved to the center of policy debate due to their growth and deepening links to the real financial system, raising financial stability concerns globally.
Europe, through the Markets in Crypto-Assets Regulation (MiCAR) in 2024, was an early mover in regulating stablecoins to contain these risks.
In contrast, the US GENIUS Act explicitly aims to ensure "the continued global dominance of the U.S. dollar.
" This has shifted the debate from whether stablecoins should exist to whether jurisdictions can afford to be without them, leading to arguments for Europe to promote euro-denominated stablecoins to avoid "digital dollarisation" and loss of monetary sovereignty.
A flawed solution for Europe
Lagarde argues that euro-denominated stablecoins present significant trade-offs, including financial stability risks and weakened monetary policy transmission.
Their inherent fragility and potential for market fragmentation make them an inefficient means to strengthen the euro's international role.
Europe should instead pursue integrated capital markets and public DLT infrastructure anchored by central bank money.