EU Advances Towards Potential Stablecoin Prohibition, Posing Risks for Key Issuers Such as Circle and Paxos

The European Central Bank (ECB) has secured support for a comprehensive ban on stablecoins throughout the European Union (EU), a decision that could impact significant issuers such as Circle and Paxos.

At the heart of the discussion are multi-issuance stablecoins, which are tokens issued collaboratively within the EU and internationally, yet regarded as interchangeable.

The ECB is garnering backing for a prohibition on stablecoins that are issued jointly in the bloc and other regions https://t.co/CCJfcfO9Ko

— Bloomberg (@business) September 30, 2025

In this framework, issuers licensed in the EU are required to maintain reserves within the bloc, while their non-EU counterparts manage reserves for the same tokens abroad.

A report from Bloomberg indicates that regulators caution that during a market downturn, investors would rush to redeem in the EU, potentially overwhelming local reserves and exposing the bloc to liabilities from external jurisdictions.

ECB’s Lagarde Advocates for Strict Regulations on Stablecoin Models Viewed as Financial Risks

The European Systemic Risk Board (ESRB), a prominent assembly of central bank governors and EU officials led by ECB President Christine Lagarde, supported a recommendation last week to prohibit such models, according to sources familiar with the situation.

Although the guidance is not legally enforceable, it increases pressure on EU authorities to either implement the restrictions or clarify how they would otherwise ensure financial stability. Both the ECB and the ESRB opted not to comment.

Lagarde has consistently expressed concerns that deficiencies in the EU’s Markets in Crypto-Assets Regulation (MiCA) leave the bloc vulnerable.

During an ESRB conference, she contended that joint issuance without stricter oversight of non-EU entities poses systemic risks akin to cross-border banking crises, where liquidity mismatches and insufficient reserves previously destabilized financial systems.

She emphasized that unless robust equivalence frameworks and protections for cross-border asset transfers are established, multi-issuance schemes will not be allowed to function within the EU.

This initiative reflects broader anxieties in Europe that dollar-denominated stablecoins could jeopardize the bloc’s financial sovereignty.

Currently, euro-backed tokens account for merely 0.15% of the $230 billion global stablecoin market, while USD-pegged assets dominate with a 99% market share.

ECB advisor Jürgen Schaaf has previously cautioned that increasing dependence on dollar stablecoins could diminish the effectiveness of European monetary policy.

Circle and Paxos, primarily operating from the United States, are among the issuers most likely to be impacted by the proposed restrictions. Their reserves are predominantly allocated in dollar cash and short-term U.S. government securities.

Regulators in Finland and France, which supervise the firms’ EU operations, refrained from commenting on the potential consequences of the proposal.

Representatives for Circle and Paxos also declined to comment, although sources familiar with their stance indicated that the European Commission had previously shown support for the multi-issuance model.

The European Commission has yet to take an official position, and divisions persist within EU institutions. While the ECB has advocated for a stringent approach, some policymakers prefer clearer safeguards instead of an outright prohibition.

A document released this month by Bank of Spain board member Judith Arnal warned that disagreements among the ECB, the Commission, and the European Parliament could undermine MiCA’s credibility as a global benchmark.

This development occurs as Europe deliberates the creation of a digital euro, which the ECB began promoting in 2021 and is still awaiting legislative approval.

Officials in Frankfurt assert that the emergence of dollar-backed stablecoins highlights the urgency of establishing a European alternative.

Cash to Remain as EU Prepares for 2029 Digital Euro Introduction

The ECB is navigating between tradition and innovation as it progresses on both cash and digital currencies, while European banks prepare their own euro-backed stablecoin.

In August, ECB Executive Board member Piero Cipollone reiterated that physical euro banknotes remain essential despite the swift increase in digital transactions.

In a blog entry, he stated that cash would coexist alongside the anticipated digital euro, characterizing the system as a “dual payment future.” Over €1.6 trillion in euro banknotes are currently in circulation, with demand continuing to rise, especially during crises.

ECB’s Lagarde calls for stricter rules on non-EU stablecoin issuers to close MiCA gaps amid euro stablecoins holding just 0.15% of global market.#Europe #Stablecoinhttps://t.co/z27iK76I6R

— Cryptonews.com (@cryptonews) September 4, 2025

The ECB has suggested legislation to ensure access to cash, even as ATMs and bank branches diminish across the bloc.

Focus is also shifting toward the digital euro. In September, Cipollone indicated that the currency could launch in 2029, following advancements among euro area finance leaders on critical issues, including customer holding limits to safeguard deposits.

A digital euro could launch in 2029, says ECB board member Piero Cipollone, citing growing momentum and progress in member-state talks.#digitaleuro #ECBhttps://t.co/yn43I38DdH

— Cryptonews.com (@cryptonews) September 24, 2025

Lawmakers are anticipated to clarify their position by May 2026, although discussions are still ongoing. Officials have stressed that a European digital currency is essential to counter the increasing influence of U.S. dollar-backed stablecoins and private payment giants.

In the meantime, nine European banks, including ING, UniCredit, SEB, and CaixaBank, have announced plans to introduce a jointly developed euro-backed stablecoin in 2026.

Nine European banks will launch a MiCA-regulated, euro-backed stablecoin that will contribute to Europe’s strategic autonomy in payments.#EURStablecoin #MiCARegulationhttps://t.co/FEUGRf7hgS

— Cryptonews.com (@cryptonews) September 25, 2025

The initiative will be regulated under the bloc’s MiCA framework and based in the Netherlands, where it will seek e-money licensing.

The consortium stated that the project aims to enhance Europe’s strategic autonomy in payments while providing instant, low-cost cross-border settlement.

This joint stablecoin initiative follows Société Générale’s introduction of a euro-backed token on the Stellar blockchain.

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