ECB Faces Unprecedented Challenge as Stablecoins Undermine Monetary Control

The European Central Bank (ECB) may face unprecedented challenges as stablecoins, particularly dollar-pegged tokens, grow to systemic relevance, Dutch central bank governor Olaf Sleijpen warned in a Financial Times interview. Sleijpen emphasized that rapid destabilization of stablecoins-driven by their reliance on assets like U.S. Treasuries-could trigger macroeconomic shocks, forcing the ECB to reconsider its monetary policy framework according to analysis. "If stablecoins are not that stable, you could end up in a situation where the underlying assets need to be sold quickly," he said, highlighting the risk of cascading market stress during a redemption crisis .

Stablecoin market capitalization has surged nearly 50% this year, reaching $310 billion, with Tether's USDt and Circle's USDC leading the charge. USDt's market cap grew 44% to $183 billion, while USDC nearly doubled to $74 billion. The U.S. Treasury has projected the sector could hit $2 trillion by 2028, intensifying European concerns about foreign currency dominance undermining monetary sovereignty . ECB Executive Board member Piero Cipollone has previously argued that a digital euro is essential to counter this trend .

The risks extend beyond market volatility. A large-scale stablecoin run could force issuers to rapidly liquidate reserves, destabilizing bond markets and complicating the ECB's inflation-targeting efforts . The European Systemic Risk Board (ESRB) has raised alarms about "multi-issuer" models, where identical tokens issued in and outside the EU could drain European liquidity during a crisis according to warnings.

In response, the ECB and European regulators are accelerating contingency plans. A consortium of nine major European banks, including ING and UniCredit, is developing a euro-backed stablecoin under the MiCA regulatory framework, aiming to reduce reliance on U.S. dollar assets . Meanwhile, the Bank of England announced temporary holding limits-20,000 pounds for individuals and 10 million pounds for businesses-to mitigate destabilizing redemption pressures .

Despite these measures, regulatory fragmentation remains a hurdle. The European Banking Authority (EBA) noted that existing MiCA safeguards may not fully address multi-issuance risks, pending clarification from the European Commission according to current analysis. French officials have advocated for centralized oversight under the European Securities and Markets Authority, a move that could introduce legal uncertainty for issuers .

Sleijpen's warnings underscore a broader debate about how central banks can adapt to a financial landscape increasingly shaped by private digital currencies. "I don't know in which direction we would be going [with rate changes]," he admitted, highlighting the unpredictability of stablecoin-driven shocks . As the ECB prepares its digital euro project-targeted for 2029-policymakers face the dual challenge of fostering innovation while safeguarding financial stability .