European Central Bank (ECB) President Christine Lagarde opposes private issuance of euro-pegged stablecoins, even though 98% of the market is made up of dollar-pegged tokens.
Despite the rapid global adoption of U.S. dollar stablecoins, Lagarde, speaking at the Bank of Spain’s Latin American Economic Forum in Madrid on Friday, argued that Europe should focus on building tokenized settlement infrastructure based on central bank currencies rather than simply copying the U.S. stablecoin model.
Lagarde said: “The case for promoting euro-denominated stablecoins is much weaker than it seems.” He believes that the technical rationale for stablecoins can be replicated by central bank infrastructure, and that their monetary functions will pose unacceptable risks to financial stability.
The comments came 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 later this year, rather than a CBDC, as Europe faces dollarization risks.
“If we don’t have the euro on-chain with the depth of liquidity, the only option is the dollar,” Qivalis CEO Jan-Oliver Sell told CoinDesk. “This poses a real risk to Europe’s financial and digital sovereignty.”
Lagarde reiterated that stablecoins could pose financial stability risks during times of market stress. She mentioned the collapse of Silicon Valley Bank in March 2023, when Circle disclosed that $3.3 billion of its USDC reserves were held at the bank, causing its stablecoin to briefly decouple.
“At scale, this dynamic could transmit stress to underlying asset markets. The promise of parity redemptions depends on market confidence, which can evaporate when financial stability deteriorates, and large-scale redemptions could accelerate that deterioration,” she said on Friday.
“As the use of stablecoins grows, so does the potential for feedback loops between redemptions and asset markets, especially where the issuer is a non-bank.”
Lagarde said on Friday that the growing global dominance of dollar-pegged stablecoins issued by Tether and Circle poses risks to the European financial system.
Lagarde noted that the amount in circulation increased from $10 billion to $310 billion in six years. However, she expressed concern that nearly 90% of the market is controlled by two issuers – Tether. and circle USDC).
She said there was a growing debate in Europe about whether the EU urgently needed to maintain influence.
“Europe must respond by promoting its own euro-denominated stablecoin,” she said. “Otherwise, it will face a future of digital dollarization and loss of monetary sovereignty.” Lagarde called on EU countries to support the development of CBDC. “We must build public infrastructure that enables alternative instruments such as stablecoins and other forms of tokenized currencies to operate within a framework based on central bank funding,” she said.
Late last year, Lagarde announced the ECB’s plan to “enable a digital euro by 2029, assuming European co-lawmakers pass the necessary regulations by 2026,” adding that preparations, including pilot work and initial transactions, could begin as early as mid-2027.