Euro at Risk: ECB Sounds Alarm on Global Stablecoin Power Play

Liquidity risks linked to foreign-issued stablecoins have emerged as a growing concern for the European Central Bank (ECB), particularly as the European Union’s regulatory framework, Markets in Crypto-Assets (MiCA), begins to take shape. ECB President Christine Lagarde has emphasized the need for EU lawmakers to address regulatory gaps that could expose the bloc to systemic vulnerabilities through non-EU stablecoin schemes. Speaking at the ninth annual conference of the European Systemic Risk Board (ESRB), Lagarde warned that current rules may be insufficient to manage the redemption risks and potential euro outflows associated with joint issuance between EU and non-EU entities.

Under MiCA, stablecoin issuers operating within the EU are required to allow investors to redeem their holdings at par value and to hold a substantial portion of reserves in bank deposits. However, these protections do not extend to non-EU counterparts in multi-issuance models. Lagarde highlighted that in the event of a liquidity run, investors would likely attempt to redeem in the jurisdiction with the strongest safeguards—typically the EU. Yet, EU-held reserves may be insufficient to meet such concentrated demand, exposing the system to potential shocks [2].

The ECB has long stressed that while the financial landscape is evolving rapidly, the core risks remain familiar. Liquidity risk, in particular, is a recurring threat, especially when institutions promise redemptions at short notice and at par value. Similar concerns have been raised in the past regarding money market funds, where a sudden loss of confidence can trigger a run on the institution. In the stablecoin context, these risks are amplified by the cross-border nature of the products and the potential for uneven regulatory standards across jurisdictions [1].

To mitigate these concerns, the ECB has called for the introduction of robust equivalence regimes that would ensure foreign stablecoin issuers comply with EU standards before operating in the bloc. Without such safeguards, there is a risk that stablecoin activity could shift toward jurisdictions with weaker oversight, undermining the EU’s financial stability framework. Lagarde urged policymakers to act proactively, stating that waiting for a crisis to occur is not a viable strategy [2].

The regulatory landscape for stablecoins is also shifting on a global scale. The United States has passed its own stablecoin framework through the GENIUS Act, signed into law by President Donald Trump on July 18. Meanwhile, reports suggest that China may be exploring the launch of a yuan-backed stablecoin, further intensifying global competition in the space. The ECB has expressed concerns that U.S.-backed stablecoins could weaken the euro’s role in international payments and erode European monetary autonomy [3].

In response, the ECB is accelerating its own efforts to develop a digital euro, which it views as essential to maintaining the currency’s relevance in the evolving digital economy. According to ECB Executive Board member Piero Cipollone, the digital euro could help counteract the risk of euro deposits being transferred to the U.S. as part of the growing cross-border competition in stablecoin issuance [2].

As the stablecoin market continues to develop, the ECB and its European partners face a delicate balance between encouraging innovation and preserving financial stability. With the regulatory frameworks in the U.S. and China also evolving, the EU’s ability to maintain a cohesive and enforceable approach will be crucial in shaping the future of digital currencies.

Source:

[1] Cutting through the noise: exercising good judgment in a ... (https://www.ecb.europa.eu/press/key/date/2025/html/ecb.sp250903~10647505c7.en.html)

[2] ECB President Calls To Address Risks From Non-EU ... (https://cointelegraph.com/news/ecb-president-risks-non-eu-stablecoins)

[3] Crypto Rules in Europe vs. the US: Does Your Stablecoin ... (https://finance.yahoo.com/news/crypto-rules-europe-vs-us-184431208.html)