ECB President Christine Lagarde Warns Stablecoins Threaten Monetary Sovereignty

As the world is jumping on the stablecoin bandwagon, there is one person who remains skeptical of the future of stablecoins. And this person is European Central Bank president Christine Lagarde.

Speaking at a central banking conference in Sintra, Portugal, Lagarde emphasized that stablecoins have the potential to erode the authority of central banks and blur the lines between private and public money.

Lagarde highlighted the increasing popularity of stablecoins, noting that their appeal as relatively stable digital assets has forced central banks worldwide to reconsider their regulatory approaches.

However, she pointed out that his mass adoption of stablecoin is a result of a confusion between what it means to be money, means of payment, and payment infrastructure.

One of Lagarde’s biggest concerns is what she calls the privatization of money. As stablecoins are often issued by private companies such as Circle and Tether, embracing stablecoins might blur the lines between "private goods" and "public goods".

“I regard money as a public good, and ourselves as the public servants in charge of securing and protecting that public good. My fear is that this blurring of the lines is likely to lead to a privatization of money. That is not the purpose for which we have been appointed, nor is it good for the public good that is money.”

Stablecoin Limits The Power Of Central Bank Over Monetary Policy

Lagarde also warned that widespread adoption of stablecoins could also limit the authority of central banks when it comes to monetary policies.

“It risks weakening the sovereignty of those countries, which inadvertently become subject to the use of that means of payment, payment infrastructure, or alleged money.”

Bank of England governor Andrew Bailey echoed similar concerns, noting that stablecoins “purport to be money” and therefore should be subject to stringent regulations.

“They purport to have the medium of exchange function of money, and therefore they do have to meet the test of money…which is really all about them being assured to hold their nominal value,”

In response to these challenges, central banks and lawmakers around the world are working to establish clear regulatory frameworks for stablecoins.

Worldwide Stablecoin Regulation

In the United States, the Senate recently passed the GENIUS Act, marking a watershed moment by providing the first comprehensive regulatory guidelines for stablecoins.

This legislation paves the way for government-sanctioned, privately issued digital currencies pegged to the U.S. dollar.

Other countries are also grappling with the impact of stablecoins. In South Korea, the popularity of dollar-backed stablecoins prompted the Bank of Korea to relax foreign exchange regulations in an effort to retain capital within the country.

Meanwhile, Lagarde continues to urge the European Parliament to accelerate the introduction of laws overseeing a digital euro, which she argues would help counterbalance the growing influence of stablecoins.

Lagarde’s concerns were echoed by other central bankers at the conference. Bank of Korea governor Rhee Chang-yong warned that, without proper oversight, stablecoins could undermine South Korea’s regulations on capital flows.

Federal Reserve chair Jerome Powell also stressed the importance of regulation, stating

“If we’re going to have stablecoins—and apparently we are—we need to have a federal and state level regulatory framework, which I think we’re making progress towards having.”

As the debate over stablecoins intensifies, central banks remain focused on preserving their ability to manage monetary policy and protect the public good in an increasingly digital financial landscape.