ECB Rejects Looser Stablecoin Rules, Tightens Euro Token Risk

The European Central Bank pushed back against proposals to ease rules for euro-denominated stablecoins at an informal meeting of EU finance ministers in Nicosia, Cyprus, on May 22. Central bankers rejected a Bruegel think tank paper that suggested lighter liquidity requirements for crypto issuers and access to ECB funding. The resistance signals that euro stablecoin issuers face a structurally restrictive regulatory environment, widening the gap with the U.S. approach under the GENIUS Act. For traders and issuers, the key risk is that the ECB treats stablecoins as a direct threat to bank deposit stability, not as a competitive innovation to be fostered.

What Bruegel Proposed and Why Central Bankers Balked

The Bruegel paper, authored by economists Lucrezia Reichlin, Bo Sangers, and Jeromin Zettelmeyer, argued that Europe needs lighter rules to compete with dollar-backed tokens. Their proposal included lower liquidity buffers for euro stablecoin issuers and giving those firms access to ECB standing facilities – effectively making the central bank a lender of last resort for crypto firms.

Central bankers at the meeting rejected both ideas firmly. ECB President Christine Lagarde questioned the lender-of-last-resort concept directly, noting that role is currently reserved for regulated banks. Several central bankers echoed her scepticism, arguing that stablecoin issuance destabilises bank deposits. When a buyer acquires a stablecoin, the money moves to the issuer’s account, removing it from the bank. At scale, this process could raise funding costs and reduce banks’ capacity to lend.

Key insight: The ECB sees stablecoins not as a payments innovation but as a mechanism that disintermediates banks and undermines monetary policy transmission. That framing makes major regulatory accommodation unlikely.

Lagarde’s Alternative: Tokenised Deposits Over Stablecoins

Earlier in May, Lagarde argued for tokenised commercial bank deposits as a better alternative. She described them as combining traditional account safety with the speed and programmability of distributed-ledger technology. The ECB is also targeting a digital euro launch by 2029, which would provide a central bank-backed digital currency for retail payments. Finance ministers at the Nicosia meeting confirmed continued progress on the digital euro.

The Regulatory Divergence: MiCAR vs. the GENIUS Act

The EU’s Markets in Crypto-Assets Regulation (MiCAR), in force since 2024, already imposes strict reserve requirements on stablecoin issuers. Holders of significant euro-denominated tokens must keep large liquid reserves, limiting the return on collateral that issuers can generate.

The US GENIUS Act, adopted in 2025, takes a lighter approach. It allows stablecoin issuers more flexibility in reserve composition, explicitly designed to advance the dollar’s global reach through regulated dollar-backed tokens. The result is a widening gap: euro stablecoins currently hold just 0.3% of total stablecoin supply, with Circle’s EURC ranking only 20th globally among stablecoins. Overall stablecoin supply grew by roughly one-third last year to reach $300 billion.

Bruegel economists warned that stricter EU rules risk deepening what they termed “digital dollarisation” – the shift of activity toward dollar-denominated tokens even within Europe. Central bankers at the meeting were unconvinced. Several called for rules preventing holders of stablecoins – whether issued in the EU or the US – from redeeming tokens on European soil. Such redemptions could expose European issuers to reserve runs and further weaken the euro’s role in digital finance.

Timeline of Euro Stablecoin Initiatives

• 2024: MiCAR enters force, imposing strict liquidity rules
• 2025: US GENIUS Act passes, lighter stablecoin regime
• Late 2025: Qivalis – a consortium of 37 European banks – plans to launch a euro stablecoin
• 2029: ECB targets full digital euro launch

Which Assets and Participants Are Exposed

The regulatory tightening directly affects issuers trying to launch euro-denominated tokens. EURC (Circle) already operates under MiCAR in Europe. The Qivalis consortium’s planned token faces the same restrictive framework. For traders, the implication is clear: euro stablecoins will remain a niche instrument relative to dollar-pegged rivals. Liquidity in EURC pairs may stay thin, and any attempt to scale issuance will trigger ECB scrutiny.