Christine Lagarde, European Central Bank president, is right about one thing: stablecoins force policy-makers to confront a distinction that the existing monetary architecture has long allowed them to manage quietly.
Stablecoins are monetary instruments, settlement assets and programmable balance sheet claims at the same time. That’s precisely why they’re uncomfortable. They don’t sit neatly in the retail payments box, nor do they remain confined to wholesale market infrastructure. They inhabit a liminal space – where blockchain allows value to move, settle and interlock seamlessly across domains.
That’s also why Europe can’t afford to dismiss euro-denominated stablecoins as a category error. One can argue whether stablecoins are perfect money or not, but if Europe wants to be present in the networks where settlement, collateral, tokenised assets and machine-mediated payments are beginning to converge – then Europe needs euro stablecoins.
Stablecoins collapse the old distinctions
Lagarde’s speech makes an important analytical move by separating the monetary function of stablecoins from their technological function. Yet the conclusion drawn from that distinction is too narrow. The fact that stablecoins perform two functions doesn’t weaken the case for them.
The reason policy-makers find them so frustrating is precisely that they collapse the old separation between retail use, wholesale settlement and financial market plumbing. In conventional finance, these categories are institutional facts. On chain, they become design choices.
The ECB has been vocal about its preferred outcome: a retail digital euro to address Europe’s consumer payments dependence, while tokenised central bank money runs through projects Pontes and Appia, anchoring wholesale tokenisation. The ECB’s digital euro frontman Piero Cipollone has described the bank’s strategy in similar terms, with the digital euro framed as a digital equivalent of cash for retail payments and tokenised central bank money as the wholesale settlement response to distributed ledger technology-based markets.
That division is coherent from the perspective of a central bank balance sheet but less convincing from the perspective of an on-chain economy. A retail digital euro designed for day-to-day payments, legal tender acceptance and offline resilience is not a native settlement asset for decentralised finance, tokenised funds, cross-border programmable commerce or automated collateral flows. The ECB’s own materials make clear that the DLT-facing work is being placed in Pontes and Appia, not in the retail digital euro itself.
The goal is autonomy, not autarky
This begs the larger question, namely what future is the ECB optimising for?
If the answer is a future in which European consumers have a public digital payment option, the digital euro may have a role. If the answer is a future in which euro liquidity circulates through global tokenised markets, settles on chain, interacts with programmable financial contracts and competes with dollar instruments in machine-readable finance, the digital euro is at best incomplete. It may provide domestic resilience, but it doesn’t by itself make the euro competitive in the networks where the next layer of financial activity is being built.
The risk is that Europe mistakes strategic autonomy for monetary autarky.
Autonomy means the ability to participate in global markets on one’s own terms. Autarky means building a self-referential system that’s safe, compliant and increasingly irrelevant outside its own perimeter. Europe has made this mistake before in financial market infrastructure. Fragmentation was tolerated in the name of institutional balance, until scale migrated elsewhere. The same error in tokenised finance would be more damaging, because network effects in settlement assets compound quickly.
Risks are not unique to euro stablecoins
Lagarde notes that dollar stablecoins dominate the market and that roughly 98% of stablecoins are dollar-denominated. She’s fair to assume a potential monetary sovereignty problem in this. But the appropriate response isn’t to conclude that euro stablecoins are unnecessary. The appropriate response is to make them safer, more transparent and more useful than their offshore dollar equivalents. Here, the Markets in Crypto-Assets regulation gave Europe a starting point by already imposing reserve, governance and redemption obligations that many other jurisdictions are only now trying to approximate.
The ECB’s concern is that euro stablecoins could weaken bank funding and monetary policy transmission if deposits migrate into non-bank instruments and return as wholesale funding. If that risk exists, it’s not unique to stablecoins. It’s the same structural question raised by money market funds, tokenised deposits, payment wallets and, indeed, a retail CBDC.
Nor is the singleness of money protected by pretending that private money can be designed out of the system. The modern monetary order is built on public and private money operating together. Cipollone himself has put the point plainly: central bank money and private money are ‘not rivals’, they complement each other. The ECB has also said its goal is not to crowd out private innovation, but to provide a public foundation on which innovation can flourish. That principle should apply to stablecoins as well.
Stablecoins as an enabler for the euro
The current posture risks saying something different in practice. Public money anchors the system and private money may innovate around it – but only where it doesn’t compete too effectively with the central bank’s own preferred architecture.
The strongest case for euro stablecoins isn’t that they replace central bank money. They shouldn’t. It’s that they allow the euro to be usable in markets where central bank money either can’t go, won’t go quickly enough or will only appear through controlled infrastructures that may not match the speed and openness of global liquidity.
Tokenised deposits may serve some institutional use cases well, especially within bank-led environments. Pontes and Appia may become important settlement anchors for regulated wholesale markets. But neither fully answers the need for a euro instrument that is portable, programmable, composable and available across public – permissionless as well as private – or permissioned networks.
US approach is clearer
This is where the American view, whatever its flaws, is strategically clearer. The US has understood that stablecoins aren’t merely a payments product. They’re a distribution mechanism for dollar liquidity, a settlement asset for tokenised markets and a channel for Treasury demand. Lagarde acknowledges that the US administration has explicitly framed stablecoin legislation as a means of supporting the global role of the dollar and demand for Treasuries.
Europe can dislike that strategy, but it can’t wish away its consequences.
If dollar stablecoins become the default cash leg of tokenised finance, Europe will face a familiar dependency in a new form. European assets may be issued under European law, traded by European institutions and supervised by European authorities, while the settlement asset that gives those markets liquidity is denominated in dollars. How is that any different than dependency with a better user experience?
Lagarde closes by saying Europe knows which port it’s sailing to. But Europe may be sailing according to yesterday’s map and not with an eye to the horizon. The risks in that are manifold and the rewards few and far between.
Erwin Voloder is Director for Research and Strategy at Blockchain for Europe.
On 19-20 May, OMFIF’s Digital money summit returns to London. This event is an opportunity for stakeholders across government, central banking, financial services and technology to connect and collaborate on innovations in digital money. Find out more here.
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