Rejecting the loosening of stablecoin regulations! European Central Bank: If relaxed, it will increase banks' financing costs and weaken lending capacity

The European Central Bank publicly opposed relaxing euro stablecoin regulation rules at the EU meeting. President Lagarde is concerned that deregulation will weaken monetary policy dominance and is pushing for a digital euro.

European Central Bank Opposes Loosening Stablecoin Regulations

Recently, the European Central Bank publicly opposed relaxing euro stablecoin regulation rules during an informal meeting of EU finance ministers and central bank officials held in Nicosia, Cyprus. According to Reuters, the Brussels think tank Bruegel submitted a policy proposal hoping the EU would lower liquidity requirements for stablecoin issuers and even allow some operators to access European Central Bank funding support to help the euro stablecoin market compete against the dominance of dollar stablecoins.

However, ECB President Christine Lagarde and several other central bank officials expressed strong concerns. They believe that if large amounts of funds flow from bank deposits to stablecoin issuers, it will increase banking financing costs, weaken banks’ lending capacity, and reduce the ECB’s control over interest rates and monetary policy.

Several officials also oppose making the ECB the “lender of last resort” for stablecoin companies. Currently, such support mechanisms are only available to regulated banking systems, and internal central bank concerns worry that including stablecoins under the same protections could expand financial system risks.

Lagarde Pushes for Tokenized Deposits and Digital Euro

Lagarde has recently publicly questioned the necessity of euro stablecoins multiple times. She believes that while euro stablecoins could increase demand for euro assets, the associated risks outweigh potential benefits, including financial stability, redemption pressures, and diminished monetary policy transmission.

Compared to private stablecoins, the European Central Bank prefers to promote “tokenized bank deposits” and the digital euro framework. Lagarde has repeatedly mentioned the ECB’s Pontes and Appia projects, aiming to establish a tokenized financial infrastructure backed by central bank money.

The ECB still plans to launch the digital euro in 2029 as a payment tool supported by central bank guarantees and operated by private financial institutions. However, the European banking industry remains cautious, worried that citizens might transfer deposits into digital euro wallets, further impacting bank deposit bases.

To mitigate impacts, the digital euro scheme currently under discussion in the EU is expected to set individual holding limits of around 3,000 euros, aiming to prevent large-scale capital outflows from banks.

Europe Worries About “Digital Dollarization” Risks

Bruegel warns in its report that compared to the US GENIUS Act, the EU’s MiCA regulation imposes stricter requirements on stablecoins, which could lead to stablecoin issuance and trading activities moving overseas, further accelerating “digital dollarization.”

The global stablecoin market size is currently about $300 billion, growing by approximately one-third over the past year. However, euro stablecoins account for only 0.3% of the total supply. The largest euro stablecoin is EURC issued by Circle, but it ranks outside the top 20 globally.

Notably, although euro stablecoins are relatively small in scale, in Q4 2025, the European region accounted for 38% of global stablecoin trading volume, indicating significant on-chain payment and stablecoin demand in Europe.

However, several ECB officials downplayed the risk of “digital dollarization” during the meeting, with some even advocating limiting large-scale redemptions of stablecoins within Europe to prevent reserve assets from facing runs.

European Banks and Private Firms Accelerate Deployment

Although regulatory attitudes remain conservative, European private financial institutions continue to advance euro stablecoin plans. The Qivalis alliance, composed of European banks, has expanded to include 15 countries and 37 banks, including BNP Paribas, ING, UniCredit, Rabobank, and Nordea.

• Related news: Unprecedented collaboration! 37 European banks team up to develop euro stablecoins, vying for dominance in on-chain finance

Qivalis plans to launch a euro stablecoin compliant with MiCA regulations in the second half of this year, aiming to establish an on-chain payment system led by European banks. Institutions like Société Générale have already begun testing related products.

Meanwhile, Europe has been promoting the concept of “payment sovereignty,” seeking to reduce reliance on US payment giants like Visa, Mastercard, PayPal, and Apple Pay. Currently, US companies still handle nearly two-thirds of card payments in the eurozone.

The ECB believes that the digital euro will become an important tool for a unified European payment infrastructure, but market participants worry that European regulation and policy progress may lag behind the development pace of private payment and blockchain technologies.