(4 March 2026 – United Kingdom) The European Central Bank has warned that the growing use of stablecoins could erode retail bank deposits across the euro area and complicate the transmission of monetary policy.
According to the working paper, as stablecoins become more widely adopted, households and businesses may increasingly shift funds away from traditional bank deposits into digital assets. Since banks depend on deposits as a stable and relatively inexpensive funding base to support lending, any sustained outflow could push institutions toward more volatile and costly wholesale funding sources.
The ECB’s analysis suggests that greater interest in stablecoins is already associated with a measurable decline in retail deposits, alongside a reduction in bank lending to businesses. “In other words, stablecoins can reduce the amount of credit banks provide to the real economy.”
Such dynamics could also weaken how effectively monetary policy flows through the financial system. Banks play a key role in passing interest rate changes on to households and corporates, but that transmission mechanism may become less predictable if deposits migrate into stablecoin-based alternatives.
Risks are amplified when stablecoins are denominated in currencies outside the euro area, particularly the US dollar. The authors write: “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.”
To address these risks, the paper recommends tighter transparency standards for stablecoin reserve holdings, strong redemption frameworks, adequate capital buffers to absorb potential losses and more robust regulatory oversight. It also argues that a planned digital euro could provide a regulated alternative that maintains monetary sovereignty.