European Central Bank (ECB) President Christine Lagarde argued against the need for privately issued euro-pegged stablecoins, even in the face of a market 98% dominated by dollar-pegged tokens.
Despite the rapid global adoption of dollar stablecoins, Largarde argued that Europe should focus on building a tokenized settlement infrastructure anchored in central bank money rather than simply replicating the US stablecoin model in a speech at the Bank of Spain’s Latin American Economic Forum in Madrid on Friday.
“The arguments for promoting euro-denominated stablecoins are much weaker than they seem,” Lagarde said, arguing that the technological argument for stablecoins can be replicated by central bank infrastructure, while its monetary function introduces unacceptable risks to financial stability.
Those comments come as Qivalis, a consortium of 12 of Europe’s largest banks, including ING, BBVA, BNP Paribas, Danske Bank and UniCredit, announced plans to launch a privately issued digital euro, not a CBDC, later this year under the same premise that Europe faces dollarization risks.
“If we don’t have a highly liquid on-chain euro, then the only alternative is the US dollar,” Qivalis CEO Jan-Oliver Sell told CoinDesk. “That is a real risk for Europe’s financial and digital sovereignty.”
Lagarde reiterated warnings that stablecoins could create risks to financial stability during periods of market stress. He referenced the collapse of Silicon Valley Bank in March 2023, when Circle revealed that $3.3 billion of its USDC reserves were in the bank, prompting a brief decoupling from its stablecoin.
“At scale, this dynamic can transmit stress to underlying asset markets. The promise of a par bailout depends on the very market confidence that can fade when financial stability deteriorates, and a massive bailout can accelerate that deterioration,” he said on Friday.
“As the use of stablecoins grows, so does the potential for feedback loops between redemptions and asset markets, particularly when issuers are not banks.”
The growing global dominance of US dollar-pegged stablecoins issued by Tether and Circle poses risks to the European financial system, Lagarde said on Friday.
Lagarde noted that circulation in six years has increased from $10 billion to $310 billion. However, he expressed concern that almost 90% of the market is controlled by two issuers: Tether. and circular USDC).
He said there is growing debate in Europe about the bloc’s urgent need to remain relevant.
“Europe must respond by promoting its own euro-denominated stablecoins,” he said. “Otherwise, you face a future of digital dollarization and a loss of monetary sovereignty.” Lagarde calls on EU countries to support the development of CBDC. “We must build the public infrastructure that allows alternative instruments, such as stablecoins and other forms of tokenized money, to operate within a framework anchored in central bank money,” he said.
Late last year, Lagarde announced the ECB’s plans for a “digital euro by 2029, assuming European co-legislators adopt the necessary regulation by 2026,” adding that preparatory steps, including pilot exercises and initial transactions, could begin as early as mid-2027.
