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The rising adoption of stablecoins could erode retail bank deposits across the euro area and weaken the transmission of monetary policy, according to a new working paper from the European Central Bank.
The study finds that as individuals and businesses increasingly shift funds from traditional bank accounts into digital assets such as stablecoins, eurozone banks may face funding pressures that could ripple through the broader economy.
Deposit Outflows and Lending Pressure
Banks depend heavily on retail deposits as a stable, low-cost funding base to support lending to households and businesses. A sustained decline in deposits could force lenders to rely more on wholesale or market-based funding, which is typically more expensive and more volatile.
According to the ECB’s analysis, growing public interest in stablecoins is statistically linked to a measurable drop in retail deposits, alongside a decline in bank lending to firms.
In practical terms, this suggests that stablecoins could reduce the volume of credit flowing to the real economy, particularly to businesses that rely on bank financing.
Implications for Monetary Policy Transmission
Beyond balance sheet effects, the study highlights broader macroeconomic implications.
Banks serve as a key transmission channel for monetary policy. When central banks adjust interest rates, the impact is typically passed through the banking system to households and firms via deposit and lending rates.
However, if deposits migrate into stablecoins, that transmission mechanism could weaken. With fewer deposits under their control, banks may respond differently to policy signals, reducing the predictability and effectiveness of rate adjustments.
The risk is amplified where stablecoins are denominated in foreign currencies, particularly the US dollar.
The authors caution:
“In simple terms, foreign monetary conditions could be ‘imported’ into the euro area through stablecoins. This would weaken the central bank’s control over financial conditions, reduce the effectiveness of traditional monetary policy instruments, and make it harder to stabilize inflation and economic activity, especially during periods of financial stress.”
Policy Safeguards and the Digital Euro
To mitigate these risks, the paper recommends a series of regulatory safeguards, including:
- Enhanced transparency around stablecoin reserve asset
- Robust and enforceable redemption guarantee
- Adequate capital buffers to absorb potential losses
- Strong supervisory and oversight frameworks
The study also points to the proposed digital euro as a potential alternative that could preserve monetary sovereignty while meeting demand for digital payment solutions.
As stablecoins continue to expand globally, the ECB’s findings underscore the growing intersection between digital asset innovation and traditional monetary stability — and the need for calibrated regulatory responses.
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