By Boluwatife Oshadiya | May 8, 2026
- ECB President Christine Lagarde separates stablecoins’ monetary and technological functions in major speech.
- Warns euro-denominated stablecoins pose financial stability and monetary policy risks despite potential benefits.
- Europe advancing DLT infrastructure via Pontes and Appia to anchor tokenised markets with central bank money.
Main Story
Against rushing to promote euro stablecoins to counter US dollar dominance, arguing that policymakers must distinguish between the instruments’ monetary and technological roles.
In a keynote address at the inaugural Banco de España LatAm Economic Forum, Lagarde highlighted the explosive growth of stablecoins — from under USD 10 billion six years ago to more than USD 300 billion today — and their heavy concentration in US dollar denomination, with Tether and Circle controlling nearly 90% of the market.
She noted that stablecoins are increasingly integrated with the traditional financial system, raising financial stability concerns particularly in regions like Latin America and Africa, but now also in advanced economies. Europe responded early with the Markets in Crypto-Assets Regulation (MiCAR), which brought stablecoins under regulatory oversight in 2024.
In contrast, the United States has advanced the GENIUS Act, framed not only as a stability and consumer protection measure but explicitly as a tool to reinforce the global dominance of the US dollar and demand for US Treasuries.
The Issues
Lagarde argued that the current debate conflates two distinct functions of stablecoins: a monetary function (extending reserve currency reach and easing access to stable value) and a technological function (serving as a native settlement asset on distributed ledger technology platforms for tokenised assets).
For the monetary function, she acknowledged potential short-term benefits like compressed sovereign yields and greater international use of the euro but highlighted material trade-offs. These include run risks — exemplified by USDC’s brief depegging during the 2023 Silicon Valley Bank collapse — and weakened monetary policy transmission as deposits shift to non-bank stablecoins.
On the technological side, stablecoins currently dominate atomic settlement in tokenised markets due to the need for a stable on-chain unit of value. However, Lagarde stressed their fragility compared to central bank money and the risk of fragmentation across multiple private issuers.
What’s Being Said
“The growing argument is that to remain relevant, Europe must respond by promoting euro-denominated stablecoins of its own. Otherwise, it faces a future of digital dollarisation and a loss of monetary sovereignty,” Lagarde stated.
She countered: “Once we disentangle those two functions, the case for promoting euro-denominated stablecoins is far weaker than it appears.”
Lagarde emphasised building public infrastructure: “The answer… does not lie in rejecting technology… Instead, we must build the public infrastructure that will enable alternative instruments… anchored by central bank money.”
What’s Next
The Eurosystem plans to launch a pilot for the Pontes project in the third quarter of 2026, linking DLT platforms to TARGET services for settlement in central bank money. This will be followed by the broader Appia roadmap aiming for a fully interoperable European tokenised financial ecosystem by 2028.
Market participants will gain options for tokenised euro central bank money and compliant euro instruments alongside any MiCAR-regulated stablecoins.
The Bottom Line: Lagarde’s intervention signals Europe’s strategic choice to prioritise resilient public infrastructure and integrated capital markets over directly mirroring the US stablecoin push. For emerging markets including Nigeria and other African economies grappling with dollarised crypto flows, this underscores the importance of sound domestic policy and infrastructure rather than passive adoption of foreign private instruments. By anchoring innovation with central bank money, Europe aims to harness DLT benefits while mitigating imported fragilities — a model with potential lessons for regulators worldwide.
