Lagarde Warns: Global Stablecoin Arms Race Threatens EU Financial Autonomy

Christine Lagarde, President of the European Central Bank (ECB) and Chair of the European Systemic Risk Board (ESRB), has called for stronger regulatory measures to address risks associated with foreign-issued stablecoins operating in the EU. In a speech delivered on September 3, 2025, Lagarde emphasized the need to close regulatory gaps, particularly in cases where EU and non-EU entities jointly issue stablecoins, which could pose liquidity and systemic risks to the financial system. She warned that the absence of robust equivalence regimes could lead to euro outflows and undermine financial stability.

Lagarde highlighted that while the EU’s Markets in Crypto-Assets Regulation (MiCAR), enacted on December 30, 2024, provides a comprehensive framework for digital asset issuers and service providers within the bloc, it does not extend to non-EU stablecoin issuers. These foreign entities may lack the same regulatory safeguards, creating asymmetries that could be exploited in times of market stress. For example, in multi-issuance schemes, where an EU and a non-EU entity jointly issue stablecoins, investors might prefer to redeem in the EU jurisdiction, where MiCAR prohibits redemption fees. However, the EU-held reserves may not be sufficient to meet sudden and concentrated demand, increasing the risk of a liquidity crisis [3].

The ECB President reiterated that the risks posed by stablecoins are not novel but rather familiar variations of classic financial risks, such as liquidity strains and sudden loss of confidence. She compared the situation to past crises involving money market funds and emphasized that the principles of sound risk management, including capital buffers and liquidity coverage ratios, remain essential. Lagarde called for European legislation to ensure that foreign-issued stablecoins operating in the EU are subject to equivalent regulatory standards, thereby preventing regulatory arbitrage and reinforcing financial stability [6].

Her remarks come amid growing global competition in the stablecoin market, as the U.S. has also moved to establish its own regulatory framework. On July 18, 2025, President Donald Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act into law, marking a significant step toward formalizing stablecoin oversight in the U.S. While the legislation is less comprehensive than MiCAR, it aims to provide a regulatory foundation for stablecoins backed by U.S. assets, potentially enhancing their role in cross-border payments and financial transactions [1].

Lagarde expressed concerns that the U.S. approach could threaten the EU’s monetary policy and financial autonomy, particularly if dollar-backed stablecoins gain dominance in cross-border transactions. This could result in further losses of fees and data for the EU, as well as increased pressure on the digital euro initiative, which the ECB has positioned as a key priority. The central bank has long explored the potential for a digital euro, viewing it as a strategic tool to protect the euro’s role in global finance and ensure a stable and secure digital payment ecosystem.

In the broader geopolitical context, reports suggest that China may also be considering the launch of a yuan-backed stablecoin following the gradual rollout of its digital yuan. While no official confirmation has been provided, the emergence of such a stablecoin could add another layer of complexity to the global stablecoin landscape. As the U.S., EU, and China each pursue their own approaches, the need for international cooperation becomes increasingly critical. Without a level playing field, financial risks will continue to seek the path of least resistance, undermining the objectives of financial stability and regulatory coherence [7].

Source:

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

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

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