European Central Bank: stablecoins will lead a new era of digital payments and banking

European Central Bank Executive Board member Piero Cipollone warned on Friday that the growing popularity of stablecoins is threatening Europe's banking system as retail deposits will be lost from commercial banks. On July 17, he told an Italian Cooperatic Bank conference in Rome that the trend has exacerbated the pressure banks already face from mobile payment platforms, which have eroded banks 'payment revenue and customer data.

The digital euro is seen as the solution

According to Chipolone, the digital euro proposed by the European Central Bank is the solution. The warning is particularly important for smaller banks, which rely on personal deposits to fund local loans. If customers start storing money in stablecoins in digital wallets rather than bank accounts, banks will need to replace this source of revenue with more expensive wholesale financing, which could lead to higher lending rates in the overall economy.

Deposit risk: the latest step away from traditional banking

In his view, deposit risk is just the latest step in a sustained move away from traditional banking. He noted that mobile payments already cover more than 10% of sales point transactions in Ireland, the Netherlands and Finland. Banks typically charge higher fees from mobile payments than debit cards Fees, but also lose valuable customer transaction data that accompanies these payments. "If the use of stablecoins increases in the future, banks will also lose retail deposits," Cipolone said.

Europe's dependence on foreign payment infrastructure

The European Central Bank emphasized that Europe relies heavily on foreign payment infrastructure. About two-thirds of card transactions in the euro area are processed using non-European networks. In addition, 13 of the 21 eurozone countries lack domestic card payment facilities, further evidence that Europe needs an autonomous payment system.

What is a stablecoin and why does the U.S. dollar stablecoin worry about the European Central Bank?

stablecoins are cryptocurrencies pegged to legal currencies, and its China-US yuan is the most common pegged target. The majority of the market share is held by Tether's USDT and Circle's USDC stablecoins, both issued outside the EU, exacerbating concerns among the ECB. EU legislation regulates euro-denominated stablecoins under the Cryptographic Asset Markets Regulation (MiCA), but largely excludes dollar-pegged stablecoins from direct supervision under the framework. It is worth noting that under MiCA, issuers of euro stablecoins must hold at least 30% of their reserve assets in the form of bank deposits, which rises to 60% for issuers deemed "important". While these requirements help banks operate under normal conditions, they may lead to a sudden outflow of bank funds during large-scale redemption activities.

Several ECB officials expressed similar concerns

Several ECB officials, including Executive Board member Isabel Schnabel, expressed similar concerns as Chipolone. Schnabel said in June that stablecoins pose risks to both financial stability and monetary sovereignty, and likened their emergence to money market funds that diverted bank deposits in the 1970s.

Digital euro: ECB countermeasures

The ECB emphasized that the digital euro will protect public funds in an increasingly digital economy while avoiding any danger to commercial banks. The proposed central bank digital currency will not pay interest and limit the amount held in individual accounts to prevent large-scale withdrawals, while banks will still provide the service rather than customers trading directly with the ECB. "The digital euro can maintain the role of public money while ensuring that banks continue to participate in the payment ecosystem while meeting customer needs," Cipolone said.

The European Central Bank has recently taken a series of major measures to implement the plan, including selecting 36 payment service providers such as Deutsche Bank, UniCredit and Revolut, and jointly conducting a 12-month pilot project with central banks of 19 countries. The beta pilot plan will be launched in the second half of 2027, and the European Parliament has voted to initiate the formal legislative process. However, the European Central Bank does not expect a full launch until 2029.

Signals to the crypto market

According to the latest statement from the European Central Bank, Europe prefers tokenized bank deposits and digital euros, rather than stablecoins issued by private companies, as the basis for future digital payments. This shift may restrict the use of stablecoins, even stablecoins that meet MiCA requirements. Circle has invested heavily in meeting European compliance requirements, but ECB representatives believe regulation cannot solve all issues related to currency sovereignty and deposit flows. Circle has achieved compliance with the EU's landmark crypto regulation, the Crypto Asset Markets Regulation. Among the top ten stablecoins with market capitalisation, only USDC meets the new EU regulations, while EURC, which has a smaller market capitalisation, also meets MiCA requirements. The USDC and EURC are uniquely positioned to provide solutions to the EU's 450 million residents.

This strategy is not limited to retail payments. The European Central Bank is advancing the "Pontes Project", which aims to use the central bank's currency to settle tokenized assets. It is also advancing the "Apia Project", which aims to establish a public-private partnership market for tokenized finance, highlighting the ECB's determination to maintain the core position of commercial banks and central bank currencies in the digital financial system.