EU Threatens to Ban Dollar Stablecoins, Targeting Circle and Paxos

TLDR

• The European Central Bank and European Systemic Risk Board are pushing to ban multi-issuance stablecoins in the EU, directly affecting Circle and Paxos operations.
• Regulators fear that during market stress, investors would rush to redeem stablecoins in the EU, overwhelming local reserves while non-EU reserves remain out of reach.
• ECB President Christine Lagarde argues the current MiCA framework leaves gaps that expose the bloc to systemic risks similar to past cross-border banking crises.
• Dollar-pegged stablecoins control 99% of the $230 billion global market, while euro-backed tokens represent only 0.15%, raising concerns about financial sovereignty.
• Nine European banks plan to launch a euro-backed stablecoin in 2026 under MiCA regulation, while the ECB targets a 2029 digital euro launch.

The European Central Bank has secured support for a potential ban on multi-issuance stablecoins across the European Union. This move could force major U.S.-based issuers like Circle and Paxos to restructure their European operations.

The European Systemic Risk Board endorsed a recommendation last week to prohibit multi-issuance models. The ESRB is a high-level group of central bank governors and EU officials chaired by ECB President Christine Lagarde.

Multi-issuance stablecoins are tokens jointly issued in the EU and abroad but treated as interchangeable. Under this structure, EU-licensed issuers must hold reserves within the bloc while non-EU partners manage reserves for identical tokens overseas.

Regulators worry this creates a redemption risk during market turmoil. They argue investors would rush to redeem their tokens in the EU, potentially exhausting local reserves while foreign-held reserves remain inaccessible.

The ESRB recommendation is not legally binding. However, it pressures EU authorities to either adopt the restrictions or explain alternative safeguards for financial stability.

Lagarde has repeatedly expressed concerns about gaps in the Markets in Crypto-Assets Regulation. Speaking at an ESRB conference, she compared the risks to cross-border banking crises where liquidity mismatches destabilized financial systems.

She stated that multi-issuance schemes will not be permitted without strong equivalence regimes and safeguards for cross-border asset transfers. The ECB declined to comment on the recommendation.

Stablecoin Market Dominated by Dollar

Dollar-denominated stablecoins control 99% of the $230 billion global stablecoin market. Euro-backed tokens represent just 0.15% of that total.

This imbalance has raised concerns in Europe about financial sovereignty. ECB adviser Jürgen Schaaf previously warned that growing reliance on dollar stablecoins could weaken European monetary policy effectiveness.

Circle and Paxos operate primarily from the United States. Their reserves are largely invested in dollar cash and short-term U.S. government securities.

Regulators in Finland and France oversee the firms’ EU operations. Both national regulators declined to comment on the potential implications of the ban.

Circle and Paxos also declined to comment. People familiar with their position noted the European Commission had previously supported the multi-issuance model.

European Response and Digital Plans

The European Commission has not adopted an official stance on the ban. Divisions remain within EU institutions over the approach.

Some policymakers prefer clearer safeguards over an outright prohibition. Bank of Spain board member Judith Arnal warned this month that disagreements between the ECB, Commission, and European Parliament could undermine MiCA’s credibility.

Nine European banks announced plans to launch a euro-backed stablecoin in 2026. The group includes ING, UniCredit, SEB, and CaixaBank.

The project will be regulated under MiCA and based in the Netherlands. The banks said the initiative aims to strengthen Europe’s strategic autonomy in payments.

ECB Executive Board member Piero Cipollone suggested a digital euro could launch in 2029. Euro area finance chiefs have made progress on key issues including customer holding limits.

Lawmakers are expected to outline their position by May 2026. Over €1.6 trillion in euro banknotes remain in circulation across the bloc.

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