The European Central Bank Rejects the Proposal to Issue More Euro Stablecoins, With Risk Considerations or Concerns Over Key Issues

According to Reuters on May 23, three informed sources said that on Friday the European Central Bank warned EU finance ministers that proposals to issue more euro stablecoins could reduce bank lending and make it more difficult to control interest rates.

This warning traces back to a report prepared for top EU financial policy makers by the Brussels-based economic think tank Bruegel. The report calls for easing liquidity requirements for cryptocurrency issuers and allowing them to access financing support from the European Central Bank.

The original intent of the proposal was to help develop a stablecoin market in Europe, which is currently dominated by dollar tokens. However, according to the sources, other central bank officials—including ECB President Christine Lagarde—immediately opposed it.

As the three informed sources said, the European Central Bank believes that easing stablecoin rules may lead to the risk of “digital asset dollarization,” while weakening the banking sector’s core role in the financial system, and potentially endangering financial stability and the central bank’s ability to steer interest rates.

Overall, the European Central Bank’s rejection stance shows that, when it comes to promoting innovation versus maintaining the stability of the traditional financial system, regulators currently lean more toward the latter.

But this decision will not only delay the development of Europe’s stablecoin market—it will also cause Europe to miss a window for shaping the discourse on digital currencies amid the dominance of dollar stablecoins.

Therefore, if Europe wants to remain competitive in future digital finance, it needs to strike a more precise balance between innovation incentives and risk management.

#Euro Stablecoin