Europe must build its own modernized settlement solutions anchored by central bank money, because stablecoins alone have structural weaknesses, European Central Bank President Christine Lagarde said Friday (May 8).
In a speech delivered at the Banco de España LatAm Economic Forum in Spain, Lagarde said that euro-denominated stablecoins might provide short-term gains in financing conditions and international reach but that those benefits would be outweighed by concerns around financial stability and monetary policy transmission.
“If we want to strengthen the international appeal of the euro, stablecoins are not an efficient way of doing so,” Lagarde said.
“The best solution remains the same: more integrated capital markets through the savings and investment union, and over time a safe asset base that matches the scale of our ambitions for the euro’s international role,” Lagarde said.
While stablecoins are not the solution, the distributed ledger technology (DLT) behind them makes it possible to build a new cross-jurisdictional financial market infrastructure that would not require legacy intermediaries, Lagarde said.
Europe needs public infrastructure that would enable alternative instruments to operate while anchored by central bank money. For example, tokenized commercial bank deposits would have the credit quality of regulated institutions and would circulate on DLT platforms, Lagarde said.
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Lagarde also pointed to the Eurosystem’s Pontes project, which enables DLT-based transactions to be settled in central bank money and is set to become available in September, and the Eurosystem’s Appia roadmap published in March that outlines the implementation of a fully interoperable, European, tokenized financial ecosystem by 2028.
“When central bank money is available natively on-chain, and when tokenized deposits and MiCAR-compliant euro instruments can operate within the same interoperable environment, market participants will have no reason to rely on a foreign private substitute by default,” Lagarde said.
It was reported in October that euro zone finance ministers were deliberating how to strengthen the presence of euro-denominated stablecoins, aiming to ensure that Europe is not sidelined in the rapidly expanding digital currency market.
In April, the Bank of France said it was pressing for a strengthening of MiCAR because that regulation only partially addresses the risks posed by changes in the digital assets sector, particularly around the widespread adoption of non-European stablecoins.
