European Central Bank officials warned European Union finance ministers that plans to expand the euro stablecoin market could have unintended consequences for bank funding and monetary policy, participants at an informal meeting in Nicosia said.
A paper prepared by Brussels-based think tank Bruegel urged policymakers to consider easing liquidity requirements for stablecoin issuers and even to explore giving them access to ECB funding. The authors of the paper - Lucrezia Reichlin, Bo Sangers and Jeromin Zettelmeyer - presented the proposals at the gathering of EU finance ministers in Nicosia, Cyprus on Friday.
Central bankers, including ECB President Christine Lagarde, voiced immediate concerns, arguing that the suggested measures could make bank deposits more volatile and weaken a core part of the financial system as well as the central bank's ability to steer interest rates.
Officials explained that when a stablecoin is issued, the purchaser's funds are transferred into the issuer's account, effectively removing those deposits from the banking system and turning them into a less stable source of funding for banks. At scale, this process risks accelerating disintermediation - the movement of funds away from banks - which could push up banks' funding costs and reduce their capacity to extend credit.
Finance ministers at the meeting were reported to hold mixed views on the Bruegel proposals. Several central bankers explicitly questioned the suggestion that the ECB act as a lender of last resort for firms issuing stablecoins - a function traditionally reserved for regulated banks.
Earlier this month, ECB President Lagarde expressed scepticism about promoting euro stablecoins and instead favoured the concept of tokenised commercial bank deposits. Those tokenised deposits would aim to combine the safety associated with traditional accounts with the speed and programmability offered by distributed-ledger technology.
Bruegel's authors framed their recommendations partly as a response to regulatory divergence between the EU and the United States. They warned that relatively stricter EU rules could push activity beyond the bloc's borders and lead to greater "digital dollarisation" - greater reliance on dollar-denominated digital tokens.
Central bankers who spoke during the meeting downplayed the risk that U.S. regulatory differences would automatically shift activity outside Europe. Several of them, however, reiterated calls for EU rules designed to prevent holders of stablecoins issued both inside the bloc and in the U.S. from redeeming those tokens on European soil - an outcome that could leave a European issuer exposed to a run on reserves.
Regulatory scrutiny is already underway. The European Commission is reviewing the Markets in Crypto-Assets Regulation (MiCAR), which took effect in 2024 and requires stablecoin issuers to maintain a substantial share of their reserves in bank deposits and other liquid assets. By contrast, the U.S. GENIUS Act, adopted in 2025, imposes lighter reserve requirements and is oriented toward supporting the global role of the dollar through regulated dollar-backed tokens.
Stablecoins have practical uses that European policymakers recognise - chiefly for cheaper cross-border payments where traditional bank transfers are costlier, and as a means of transacting in cryptocurrencies. Yet they are not without precedent for failure, as the collapse of the TerraUSD token in 2022 demonstrated.
Industry developments underline the stakes. A European banking consortium under the Qivalis project has expanded to 37 institutions across 15 countries and is aiming to launch a euro-denominated stablecoin later this year, following smaller projects initiated by Societe Generale. At the same time, stablecoin supply grew by roughly a third last year to about $300 billion, a figure cited by Bruegel from Artemis data.
Despite the overall growth in supply, euro-denominated stablecoins represent only a tiny fraction of the market - roughly 0.3% of the total. The largest euro token, Circle's EURC, ranks around 20th globally. Notably, Europe-based stablecoin transactions constituted 38% of global stablecoin transactions in the last quarter of 2025.
The exchange on stablecoins took place amid a wider policy push to enhance Europe's payments autonomy, including plans for a digital euro targeted for launch in 2029. That project itself has encountered resistance from banks, which fear a digital central bank liability could siphon deposits away from the commercial banking sector.
At the Nicosia gathering, EU finance ministers said they would continue working on the digital euro while weighing the trade-offs raised by both private stablecoin initiatives and regulatory approaches. The debate reflects an effort to balance innovation in digital payments with the preservation of financial stability and effective monetary policy tools.