Stablecoins and the future of money: separating functions from instruments

Christine Lagarde, President of the European Central Bank, delivered a speech at the Banco de España LatAm Economic Forum in Roda de Bará, Spain. She highlighted the rapid growth of stablecoins, from less than USD 10 billion six years ago to over USD 300 billion today, mainly denominated in US dollars and controlled by two issuers, Tether and Circle.

Lagarde emphasized the importance of distinguishing between the two functions of stablecoins: a monetary function and a technological function. The monetary role involves extending the reach of reserve currencies and easing cross-border payments, while the technological role relates to how transactions are executed and settled using distributed ledger technology (DLT).

She noted that stablecoins can improve access to cross-border payment infrastructure and reduce frictions in holding currencies outside their jurisdiction. However, the risks include financial stability concerns and potential impacts on monetary policy transmission, especially if stablecoins grow significantly.

Regarding technological functions, DLT enables integrated, cross-border financial infrastructure, but stablecoins as settlement assets face issues of fragility and fragmentation. The ECB is developing public infrastructure, such as the Pontes project and the Appia roadmap, to ensure safe, interoperable, and central bank-backed digital settlement systems by 2028.

Lagarde concluded that Europe’s focus should be on building foundational infrastructure and safe assets rather than simply replicating US or other models. She stressed the importance of anchoring settlement in central bank money to avoid vulnerabilities and to harness technological innovation securely.

For more details, visit the original source: ECB official announcement.