The European Central Bank Refuses to Ease Regulation on Euro Stablecoins Due to Concerns Over Increased Funding Costs and Disruption of Interest Rate Control

On May 23, the European Central Bank (ECB) nixed a proposal to ease rules on Euro-denominated stablecoins, warning such changes would pose too big a risk to financial stability and monetary policy transmission. At an informal meeting of EU finance ministers in Nicosia, Cyprus, the think tank Bruegel suggested slashing liquidity requirements for stablecoin issuers and letting them tap ECB funding when needed—moves aimed at curbing the dominance of U.S. dollar-backed stablecoins and staving off "digital dollarization." But officials including ECB President Christine Lagarde pushed back hard, arguing stablecoins would erode bank deposits, drive up banks’ funding costs, reduce their lending capacity, and derail interest rate control. While some finance ministers leaned ambivalent on the plan, several central bank officials raised red flags about the ECB acting as a "lender of last resort" for stablecoin issuers. Right now, the EU enforces strict stablecoin regulations under the MiCAR framework, while the U.S. GENIUS Act, passed in 2025, takes a more lenient approach. Euro stablecoins currently make up only 0.3% of the global stablecoin supply, and Europe is advancing its Digital Euro project to strengthen payment sovereignty.