The European Central Bank has warned that the rapid growth of stablecoins could erode the effectiveness of monetary policy in the euro area, as funds migrate from traditional bank deposits into digital tokens.
ECB economists said in a working paper published Tuesday that the growth of stablecoins is having tangible consequences for deposit levels and lending activity.
“Our analysis shows that rising interest in stablecoins is linked to a measurable decline in retail bank deposits and a reduction in lending to firms,” ECB staff wrote, adding that such dynamics can curb the volume of credit flowing into the real economy.
Although stablecoins remain small compared with the euro zone’s €17 trillion, or about $19.7 trillion, in bank deposits, their market capitalisation has more than doubled over the past three years to $312 billion and is projected to reach $2 trillion by 2028.
Policymakers said that the pace of the growth, rather than the current scale, is what warrants closer scrutiny.
Unchecked stablecoin growth has consequences
A key focus of the ECB’s paper is the deposit substitution effect.
As households and companies transfer funds from bank accounts into stablecoins, lenders lose a key source of low-cost and relatively stable funding.
The working paper notes that banks rely heavily on deposits to support lending to households and businesses.
As deposits drop, it could push banks toward wholesale or market-based funding, which is typically more expensive and less predictable.
“In other words, stablecoins can reduce the amount of credit banks provide to the real economy,” the economists wrote.
The euro area economy depends heavily on banks to transmit interest rate decisions into broader financial conditions.
If stablecoin adoption alters funding structures, the link between policy rates and lending costs may weaken.
The paper warns that the effects are nonlinear and depend on the scale of adoption, token design and regulatory treatment, which could make the impact of policy moves harder to anticipate.
Further, the ECB added that “foreign monetary conditions could be ‘imported’ into the euro area through stablecoins,” potentially weakening the central bank’s influence over liquidity and financial conditions, particularly during periods of stress.
American bankers have similar concerns
Across the Atlantic, bankers have raised similar concerns.
In early 2026, the American Bankers Association and several community banking groups sent letters to the US Senate cautioning that stablecoins could undermine the deposit-funded lending model.
Banking leaders have warned that if stablecoins are allowed to function as interest-bearing savings vehicles rather than simple payment instruments, capital migration could run into the trillions of dollars.
These concerns have complicated progress on the Clarity for Payment Stablecoins Act, which had been positioned as a cornerstone of US crypto legislation in 2026.
Lawmakers have struggled to reconcile the banking sector’s concerns with industry calls for regulatory certainty.
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