President of the European Central Bank (ECB), Christine Lagarde, argued against the need for privately issued euro-pegged stablecoins, even in the face of a market 98% dominated by dollar-denominated tokens.
Despite the rapid global adoption of USD stablecoins, Largarde argued that Europe should focus on building 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 LatAm Economic Forum in Madrid on Friday.
“The case for promoting euro-denominated stablecoins is far weaker than it appears,” Lagarde said, arguing that the technological case for stablecoins can be replicated by central bank infrastructure, while their monetary function introduces unacceptable risks to financial stability.
These comments come as Qivalis, a consortium of 12 of Europe’s biggest 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 euro onchain with depth of liquidity, then the only alternative is the US dollar,” Qivalis CEO Jan-Oliver Sell told CoinDesk. “It is a real risk to Europe’s financial and digital sovereignty.”
Lagarde repeated warnings that stablecoins could create financial stability risks during periods of market stress. She 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, causing a brief untying of its stablecoin.
“At scale, such dynamics can transmit stress to the underlying asset markets. The promise of par redemption depends on market confidence itself, which can disappear as financial stability deteriorates – and a mass redemption could accelerate that deterioration,” she said on Friday.
“As stablecoin usage grows, so does the potential for feedback loops between redemptions and asset markets, especially where issuers are non-banks.”
The growing global dominance of US dollar-pegged stablecoins issued by Tether and Circle represents risks to Europe’s financial system, Lagarde said on Friday.
Lagarde noted that in six years, inventories have increased from $10 billion to $310 billion. However, she expressed concern that almost 90% of the market is controlled by two issuers – Tether and Circle USDC).
She said there is growing debate in Europe about the bloc’s urgent need to remain relevant.
“Europe must respond by promoting euro-denominated stablecoins of its own,” she said. “Otherwise it faces a future of digital dollarization and a loss of monetary sovereignty.” Lagarde calls on EU countries to support the development of a CBDC. “We need to build the public infrastructure that will enable alternative instruments, such as stablecoins and other forms of tokenized money, to operate within a framework anchored by central bank money,” she said.
At the end of last year, Lagarde announced the ECB’s plans for a “digital euro by 2029, provided that the European co-legislators adopt the necessary regulation by 2026,” adding that the preparatory steps, including pilot exercises and initial transactions, could begin as early as mid-2027.
