ECB Warns Stablecoin Growth Poses Risk to Bank Lending and Monetary Control

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The European Central Bank has issued a warning that the rising adoption of stablecoins could drain funds from bank deposits and interfere with the transmission of monetary policy. A new working paper published Tuesday examines how these digital assets, typically pegged to currencies such as the US dollar or the euro, may disrupt traditional financial channels.

The paper, titled “Stablecoins and Monetary Policy Transmission,” suggests that growing interest in stablecoins is already linked to a measurable decline in retail bank deposits. ECB staff noted that this shift in consumer behavior is reducing the amount of credit banks can extend to firms, potentially weakening their role in supporting the real economy.

“Our analysis shows that rising interest in stablecoins is associated with a reduction in lending to businesses,” ECB staff said, adding that the effects become more pronounced as adoption scales up.

The central bank emphasized that the ultimate impact will depend on the design features of stablecoins, how they are regulated, and the pace at which they integrate into the financial system.

The report is part of the ECB’s ongoing monitoring of stablecoins, whose market capitalization has more than doubled over the past three years to $312 billion. Industry projections suggest the sector could reach $2 trillion by 2028, heightening concerns among policymakers about the potential implications for monetary stability.