ECB Cautious on Euro Stablecoin Plans Amid Lending Concerns

The European Central Bank (ECB) has raised concerns about the potential impact of euro stablecoin proposals on the banking sector. According to sources close to the matter, ECB President Christine Lagarde expressed her reservations during an informal gathering of EU finance policymakers in Nicosia, Cyprus.

The proposal, put forward by Bruegel, a Brussels-based economic think tank, aims to cultivate a European stablecoin market and provide more favorable conditions for crypto issuers. However, central bankers are wary that stablecoins could reduce bank lending and make controlling interest rates harder.

One of the main concerns is that stablecoins could accelerate disintermediation, raise funding costs, and curb banks' lending capacity. When a stablecoin is issued, buyer funds transfer to the issuer's account, diminishing funding stability for banks.