The European Central Bank warned EU finance ministers on Friday that proposals to expand the issuance of euro stablecoins could weaken bank lending and complicate monetary policy, according to three sources cited by Reuters.

The repulse came in response to the strategy document prepared by the Brussels think tank Bruegel, whose authors presented their proposals during a two-day informal meeting meeting Economic and Financial Affairs Council in Nicosia, Cyprus. The document calls for easing liquidity requirements for stablecoin issuers and potentially granting them access to ECB funding, arguing that these measures are necessary if the euro stablecoin market is to compete with dollar-backed rivals.

According to the policy document, Europeans conduct 38% of global stablecoin transactions, but euro-denominated tokens account for just 0.3% of the total supply. The largest euro stablecoin owned by Circle’s EURC (EURC) ranks only 12th in the world, According to to CoinMarketCap.

The best euro stablecoins. Source: CoinMarketCap

The main question at the meeting in Nicosia was whether Europe wants to fill this gap strongly enough to extend central bank-style support to stablecoin issuers. For now, however, the ECB’s answer seems to be no.

Related: MiCA Made Euro Stablecoins Safe, But Too Small, Report Says

Euro stablecoins could destabilize banks

According to Reuters, ECB President Christine Lagarde has led the resistance, warning that issuing stablecoins makes bank deposits less stable by transferring buyers’ funds to issuers’ accounts. Policymakers fear that this will accelerate disintermediation globally, raise bank financing costs and weaken the ECB’s ability to manage interest rates.

Several central bankers at the meeting also openly questioned Bruegel’s proposal to position the ECB as the lender of last resort for stablecoin companies, which the report found is currently reserved for regulated banks.

In a speech at the Banco de España LatAm Economic Forum in Spain earlier this month, Lagarde argued that euro stablecoins could generate additional demand for sheltered assets in the euro zone, but warned that the trade-offs, including risks to financial stability, redemption pressures and weaker monetary policy transmission, outweighed the benefits.

Instead of stablecoins, Lagarde pointed to tokenized financial infrastructure anchored in central bank money as Europe’s preferred path, citing the Eurosystem’s Pontes project for wholesale settlements and Appia’s roadmap for interoperable tokenized finance.

Related: European banks return MiCA Euro Stablecoin to competing dollar tokens

EU central bankers downplay fears of digital dollarization

Bruegel’s authors warned that stricter EU rules compared to the US could accelerate digital dollarization and push activity outside the EU. However, according to a Reuters report, central bankers at the meeting largely dismissed this concern, with several of them instead calling for restrictions on the redemption of stablecoins issued in both the US and the EU to prevent reserves from being tapped.

The debate comes as the EU reviews its cryptocurrency markets regulation (MiCA), which requires stablecoin issuers to maintain huge reserves of liquid assets, unlike the more indulgent US GENIUS Act.

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