Christine Lagarde warned yesterday in Roda de Berà that promoting euro stablecoins to counteract dollarization is a mistake with serious risks for the European Union. The President of the European Central Bank spoke at the inaugural conference of the first LatAm Economic Forum, held at the Bank of Spain facilities in Tarragonès.
Lagarde dismantles the race for stable cryptocurrencies
The meeting brought together officials from 26 central banks and multilateral financial organizations, along with ten academic institutions from Latin America and Europe. Attendees discussed capital flows, exchange rates, and geopolitics in a context of high volatility.
Gabriel Galípolo, president of the Central Bank of Brazil, participated as the initial speaker at the forum. His intervention set the tone for sessions focused on financial integration between both regions.
The highest monetary authority in the euro zone was forceful in analyzing the rise of digital assets. Around 90% of the market is controlled by two issuers, Tether in El Salvador and Circle in the United States, according to their data. The majority of these assets are denominated in US dollars.
"Today I'm going to bore you with stablecoins, so grab a coffee" - Christine Lagarde, President of the European Central Bank
Lagarde described stable cryptocurrencies as a promise and not a tangible reality. To illustrate the lack of strategic direction in this area, she quoted Seneca: "He who does not know to which port he is sailing, no wind is favorable."
Risks to the transmission of monetary policy
The dominant discourse suggests that Europe must emulate the American model to maintain its competitiveness. Lagarde rejected this path and warned that promoting its own stable euro-based cryptocurrencies could lead to a loss of monetary sovereignty.
The president of the ECB argued that turning these digital currencies into investment products would freeze the money needed to maintain exchange rate stability. This dynamic would reduce the financing capacity of the traditional banking system.
Banks lend less when deposits migrate towards speculative assets, which weakens monetary policy. In the United States, companies have greater access to capital markets, so that impact on monetary transmission is smaller.
The collapse of Silicon Valley Bank in 2023 served as a practical example of the vulnerability of stablecoins to a loss of confidence. A sudden demand for redemption can quickly destabilize the associated financial ecosystem.
In the last six years, the value of stablecoins in circulation has increased from less than 10 billion dollars to more than 300 billion dollars. This accelerated expansion worries European regulators.
The report on the Single Market prepared by Enrico Letta in April 2024 points out that the Capital Markets Union requires a Union of Savings and Investments. This mechanism is essential to mobilize European citizen savings towards productive projects.
Lagarde indicated that the way to increase the international presence of the euro goes through more integrated capital markets and a base of safe assets. Distributed ledger technology allows for the creation of shared infrastructure for financial markets across different jurisdictions.
The final proposal of the ECB president seeks to balance innovation and stability. She advocates for creating a public infrastructure that allows for the operation of alternative instruments, such as stablecoins and other forms of tokenized money, within a framework backed by European Central Bank money.