ECB President Lagarde rallies digital euro support against USD stablecoins payment lead

Dollar stablecoins command a market cap of around $317 billion per CoinMarketCap data. Euro stablecoins, on the other hand, have less than a $1 billion market cap. 

While some quarters, which include major banks, have been pushing for more adoption of private euro-denominated stablecoins, the ECB is taking a different approach as it views its own central bank digital currency as the only credible path forward.

How do Lagarde and the ECB plan on countering USD-denominated stablecoins?

Speaking at the Banco de España LatAm Economic Forum in May, Lagarde called the case for euro-denominated stablecoins “far weaker than it appears.”  

She pointed to their vulnerability during market stress and the risk they pose to the ECB’s ability to transmit interest-rate policy across the economy.

“If we want to strengthen the international appeal of the euro, stablecoins are not an efficient way of doing so,” Lagarde told the audience in Spain.

According to her, the depegging of USD Coin (USDC) during the Silicon Valley Bank collapse in 2023 is evidence of the structural fragility that is baked into stablecoin design. 

Lagarde stated that ECB research showed that if stablecoins replaced bank deposits at scale, the result would be weaker lending to firms and a diminished ability for rate changes to reach the real economy.

Instead, she endorsed tokenized commercial bank deposits as a safer blockchain-compatible option, arguing they avoid the run risk that plagues stablecoins while still enabling on-chain circulation.

ECB Executive Board member Isabel Schnabel reinforced that position on June 1 at a Bank of Korea conference in Seoul. Schnabel drew a parallel between modern stablecoins and the money market funds that pulled deposits out of banks in the 1970s, warning that both promise stability while creating fragility underneath.

Because nearly all stablecoins in circulation are pegged to the dollar, Schnabel argued their spread would entrench American monetary influence at the expense of other currencies. 

“The dollar’s dominance would be reinforced, not necessarily owing to stronger economic fundamentals but due to network effects, scale and first-mover advantages,” Schnabel was quoted at the time.

Schnabel also warned that persistent dollar-stablecoin dominance is not good for Europe, as it could limit the euro’s role in tokenized finance and, by extension, in the international monetary system.

Is the digital euro operational?

The ECB’s preferred solution, the digital euro, is not close to launch. A pilot program is not expected to begin until the second half of 2027. 

That pilot is expected to run for 12 months with a limited number of banks and merchants. Even under the most optimistic timeline, the ECB does not expect to issue a digital euro before 2029.

The European Parliament voted in February to endorse the digital euro framework, with 420 lawmakers backing an amendment supporting online and offline functionality.

Lagarde has said the digital euro would run on European infrastructure, reducing reliance on foreign payment providers like Visa and Mastercard.

But the timeline leaves a gap that private-sector players are racing to fill. Ten major European banks, including BNP Paribas, ING, and UniCredit, formed a consortium called Qivalis to launch a euro-backed stablecoin.

The consortium applied for an electronic money institution license with the Dutch Central Bank.

Euro stablecoin transaction volume grew from $69 million in January 2025 to $777 million by March 2026, according to TRM Labs. Circle’s EURC holds over 50% of the euro stablecoin market after securing an early French electronic money institution license under MiCA, the bloc’s crypto regulatory framework.

Are all member states on board with Lagarde’s stance?

Lagarde’s stance puts her at odds with the European Commission and several member-state governments. France, in particular, sees euro stablecoins as a tool for boosting the currency’s international standing.

A report from Blockchain for Europe released in April and co-authored by former ECB Director General Ulrich Bindseil stated that MiCA’s restrictions are too harsh and risk pushing stablecoin businesses out of Europe entirely.

Bundesbank board member Michael Theurer said to reporters that both tokenized deposits and stablecoins are “crucial,” even as he recognized the risks tied to the latter.