European Central Bank President Christine Lagarde used a speech in Spain on Thursday to deliver one of her clearest warnings yet about the rise of stablecoins, arguing that policymakers are increasingly mistaking the instrument for the outcome and failing to separate the role stablecoins play in payments from the broader question of what modern financial infrastructure actually needs.
Speaking at the inaugural Banco de España LatAm Economic Forum at Castillo de Bará, Lagarde said stablecoins have moved from a niche corner of the crypto world to the center of the policy debate at remarkable speed. Once a market worth less than $10 billion six years ago, stablecoins have now grown to more than $300 billion, with the vast majority denominated in U.S. dollars and nearly 90% of the market controlled by Tether and Circle.
That growth, she said, has forced regulators to confront a new set of risks, particularly as stablecoins become more tightly linked to the real financial system. The concerns have been especially visible in Latin America and Africa, where stablecoins are increasingly used as a store of value or a practical payment rail in countries with weaker currencies. But Lagarde said the debate has now spread well beyond emerging markets and is firmly on the radar of advanced economies too.
Europe, she noted, moved early with its Markets in Crypto-Assets Regulation, or MiCAR, which brought stablecoins into the regulatory perimeter in 2024. But in the United States, the policy approach has taken a very different direction. The GENIUS Act, she said, is being framed not only as a consumer protection and financial stability measure, but also as a tool to reinforce the global role of the dollar and deepen demand for U.S. Treasuries. That shift, in Lagarde’s telling, changes the entire debate. The question is no longer whether stablecoins should exist, but whether a major economy can afford not to have them.
ECB Chief’s Warning
For Europe, some now argue that the answer is to push euro-denominated stablecoins to avoid a future of digital dollarisation and a gradual erosion of monetary sovereignty. Lagarde pushed back against that idea, saying the argument rests on a mistaken assumption: that stablecoins have a single purpose. In reality, she said, they serve two very different functions, one monetary and one technological, and the policy response should reflect that distinction.
On the monetary side, stablecoins can make it easier for reserve currencies to circulate globally and for savers abroad to hold them. They also reduce frictions compared with older payment channels, especially in cross-border transactions. But Lagarde argued that any gains must be weighed against serious downsides.
The first is financial stability. Stablecoins are private liabilities that only hold their value when markets trust the issuer’s reserves and liquidity. When confidence breaks, the system can unravel quickly. She pointed to the 2023 collapse of Silicon Valley Bank, when Circle revealed that $3.3 billion of USD Coin reserves were held there and the token briefly slipped to $0.877.
The second risk is monetary policy transmission. If households and firms shift money out of bank deposits and into stablecoins, the banking system could lose a key source of funding, making it harder for interest rate changes to flow through to the real economy. In the euro area, where banks still dominate credit provision, Lagarde said that could weaken lending and undermine policy effectiveness.
For those reasons, she argued, euro stablecoins would not be the best way to strengthen the currency’s international role. A deeper and more integrated capital market, together with a stronger safe-asset base, would be far more effective. But Lagarde was equally clear that the technology behind stablecoins is not something Europe should dismiss.
The real innovation, she said, is not the token itself but the infrastructure that allows assets to be tokenised and settled on distributed ledger technology. That creates the possibility of transactions, custody and settlement all happening on a single programmable platform, potentially making financial markets faster, more efficient and less fragmented.
Europe, however, starts from a difficult position. Lagarde highlighted just how fragmented the continent’s financial market infrastructure remains, with hundreds of trading venues, dozens of clearing counterparties and multiple central securities depositories across the EU. That stands in sharp contrast to the much more centralized structure in the United States.
She said that if Europe does not build its own public settlement infrastructure, dollar stablecoins could become the default cash instrument in tokenised markets, deepening foreign dependence at the settlement layer itself. Still, Lagarde rejected the idea that Europe should fight the technology.
Instead, she said, the answer is to build public infrastructure that allows safe settlement in central bank money while leaving room for private innovation. She pointed to the Eurosystem’s Pontes project, which is expected to provide wholesale settlement through a link between distributed ledger platforms and TARGET, the ECB’s existing settlement system. She said tests conducted in 2024 showed the model worked in practice, with 50 transactions across nine jurisdictions totaling about €1.6 billion.
She also pointed to the Appia roadmap, published in March, which maps out a path toward a fully interoperable tokenised financial ecosystem by 2028. Lagarde’s core message was that Europe should not simply copy the U.S. stablecoin model. It should build the foundations first and design its own framework around central bank money, interoperable systems and more integrated capital markets.
In her view, that is the only way to benefit from digital innovation without importing the fragilities that come with private money. “The question,” she said in effect, is not which stablecoin wins, but whether Europe is building the right port to sail toward. For the ECB president, the answer is clear: stablecoins may have a role to play, but they should not be mistaken for the foundation of the future financial system.
