The European Central Bank’s president Christine Lagarde warned that stablecoins, while promising faster and cheaper cross-border payments, pose significant risks to monetary policy and financial stability, emphasising the need for robust regulatory frameworks to govern these privately issued digital assets.

Stablecoins in the euro area

At a hearing of the committee on economic and monetary affairs of the European Parliament on 23 June 2025, Lagarde described crypto-assets as “a fast-developing segment of the financial landscape.” She noted that “unbacked crypto-assets--those that are not backed by physical or financial assets--have seen their market capitalisation surge from less than €200bn in early 2020 to around €2.7trn this year.” She highlighted that “this remarkable growth has been marked by investor speculation and extreme price volatility,” adding that “these characteristics render such assets unsuitable as a reliable means of exchange and expose investors to significant risks.”

While “risks to the euro area’s financial stability from crypto-assets appear limited” for now, Lagarde cautioned that “the rapid pace of developments, combined with data gaps that may create blind spots require closer monitoring.” She cited survey data showing “around 10% of households hold crypto-assets, with around 14% expressing an interest in future purchases.” As valuations increase, “the risk for investors from sharp price corrections increases and could reverberate across the financial system.”

Stablecoins: promises and perils

Lagarde explained that stablecoins are “a specific type of crypto-asset [that] aims to maintain a fixed value relative to one or more reference assets,” with “99% of stablecoins denominated in US dollars.” They “often act as an entry point to crypto-assets and facilitate crypto-asset trading,” attracting users “by promising faster and cheaper corporate and retail cross-border payments.”

However, she emphasised that “stablecoins are privately issued and notably pose risks for monetary policy and financial stability. These assets are not always able to maintain their fixed value, compromising their usefulness as a means of payment and a store of value.” Furthermore, “a potential shift in deposits used for payments and savings--from banks to stablecoins--could adversely affect the transmission of monetary policy through banks.” She stressed that “stablecoins must therefore be governed by sound rules, especially when they operate across international borders.”

Regulatory response and global challenges

Lagarde pointed to the European Union’s “decisive step” through the markets in crypto-assets regulation (Mica), describing it as “the world’s first regulatory framework for stablecoins.” Mica “allows EU-based stablecoin investors to redeem their holdings at par value at all times and requires a substantial share of stablecoin reserves to be held in bank deposits, thereby minimising the risks for consumers and financial stability.”

She also noted that “most major jurisdictions, however--including the United States--are still working towards establishing their own regulatory frameworks.” As an example, she cited that “Tether, the largest stablecoin issuer, is currently based in El Salvador, which lacks any prudential framework for stablecoins.”

This, Lagarde said, “prevents a global level playing field and can open the door to new risks and systemic vulnerabilities.” She concluded: “We must therefore remain alert to developments in other jurisdictions and advocate for globally aligned regulations for stablecoins.”

Priority for digital euro

Finally, Lagarde emphasised that “accelerating progress towards a digital euro is a strategic priority.” She argued that, “beyond addressing some of the risks posed by stablecoins, a digital euro would help safeguard Europe’s bank-based financial and monetary system.” She added that it “would strengthen Europe’s strategic autonomy” and “ensure an innovative and resilient European retail payments system.”