European Central Bank board member Piero Cipollone has warned that stablecoins could siphon deposits away from banks, creating a three-layer threat to the financial system from digital payments. Cipollone, speaking in a recent address, framed the digital euro as the only structural solution to stem the risk.
The three-layer threat
Cipollone described how stablecoins – digital tokens pegged to traditional currencies – pose challenges that go beyond simple competition. The first layer, he said, involves the immediate loss of customer deposits as users shift funds into stablecoin wallets. That strips banks of a cheap, stable funding source.
The second layer hits banks' payment infrastructure. If stablecoins become popular for everyday transactions, they bypass traditional payment rails and chip away at the fees banks earn from processing payments. The third layer, Cipollone argued, is systemic: a rapid outflow of deposits could force banks to shrink lending, potentially slowing the broader economy.
Why stablecoins pose a deeper risk
Stablecoins have grown quickly over the past few years, with issuers like Tether and Circle now holding tens of billions in reserves. Unlike bank deposits, stablecoins aren't covered by deposit insurance. Cipollone's warning suggests that the ECB sees them not just as a niche crypto product but as a potential disruptor to the core banking model.
He pointed out that any large-scale shift from bank deposits to stablecoins would weaken the transmission of monetary policy. Central banks rely on deposit rates to influence lending rates; if deposits flee, that channel gets jammed.
The digital euro as the countermove
For Cipollone, the answer isn't to ban stablecoins but to offer a better alternative. The digital euro – a central bank digital currency (CBDC) still in development – would serve as a public, risk-free digital payment tool. He called it the only structural fix because it would keep users within the Eurosystem while providing the convenience of digital payments.
The ECB has been working on the digital euro for years, with a potential launch still pending approval from EU lawmakers. Critics worry about privacy and the risk of the central bank competing with commercial banks. But Cipollone argued that without a digital euro, the system would be more vulnerable to stablecoin runs.
No timeline for the digital euro's rollout has been set. The ECB is expected to continue its investigation phase through late 2025, with a decision on issuance coming after that.
