Stablecoins Weaken Eurozone Monetary Policy Transmission: European Central Bank

In a March 3 report titled “Stablecoins and Monetary Policy Transmission”, the European Central Bank (ECB) warned that increased stablecoin adoption was undermining financial stability and policy effectiveness in the eurozone.

ECB outlines the cascade of risks imposed by stablecoins

According to the ECB, as more people swap the euro for these virtual currencies, banks lose a stable and low-cost source of funding from retail deposits.

This forces them to switch to the more expensive wholesale funding that comes with volatile interest rates for both the banks and the customers they lend to.

ECB estimates that for every 10% increase in stablecoin market cap, there will be a 0.2% reduction in bank lending. It further adds that interest cuts to stimulate the economy would be useless, since banks will have tightened their lending policies to keep their operations afloat.

The ECB adds that widespread adoption would import US monetary conditions to Europe since most (85%+) of these digital currencies are dollar-backed.

The ECB projects a non-linear pattern to these effects, saying that they would accelerate should the digital currency market cap hit $2-$4 trillion by 2030.

Source: European Central Bank

To counter these risks, the ECB is promoting the digital euro, which it says is safer from a bank run than private stablecoins

Growth and adoption headwinds

As of March 4, 2026, the global stablecoin market capitalization was approximately $316.27 billion. While this is dwarfed by the eurozone’s €17 trillion bank deposits, its growth is notable since it has more than doubled in the past three years.

Despite this, the banking industry is strongly pursuing a stablecoin-yield ban with the upcoming CLARITY Act. US President Donald Trump has vowed to look into this, saying, “They (banks) need to make a good deal with the crypto industry.”

French Hill, the Chairman of the House Financial Services Committee, recently suggested the Senate could simply label stablecoins as a payment device rather than an investment product, just as stipulated by the GENIUS Act.

Meanwhile, TD Cowen multinational investment bank, said banks will likely lose the stablecoin-yield fight.