ECB Warns on Euro Stablecoins Amid Concerns Over Bank Lending and Interest Rates

The European Central Bank (ECB) has raised concerns over proposals to issue more euro stablecoins, which could potentially disrupt bank lending and make it harder for central banks to control interest rates.

Brussels-based economic think tank Bruegel presented the idea at an informal meeting of EU finance ministers in Nicosia, Cyprus. However, ECB President Christine Lagarde and other central bankers expressed reservations about the proposal, citing risks to bank stability and monetary policy.

The Bruegel authors suggested easing liquidity requirements for crypto issuers and potentially giving them access to ECB funding. This would allow Europe to grow a stablecoin market dominated by dollar-based tokens.

However, central bankers argued that this could make bank deposits more fickle, weakening an economically vital sector and the central bank's ability to engineer interest rates.