A research report released by the European Central Bank (ECB) on March 3 indicates that the widespread adoption of stablecoins in the euro area could weaken the effectiveness of monetary policy, divert bank deposits, and reduce credit supply to the real economy.

Stablecoins are a type of crypto asset designed to maintain a stable value. While they currently represent a niche market, their rapid growth has raised regulatory concerns, as existing oversight measures have not kept pace with the development of a product that could reshape the commercial and central banking systems.

For traditional banks, a central issue is that increased usage of stablecoins may lead customers to move funds out of bank deposits, forcing banks to obtain funding from the market at higher costs.

ECB economists stated in the report: "In other words, stablecoins would reduce the volume of credit supplied by banks to the real economy."

However, total bank deposits in the euro area currently amount to around €17 trillion (approximately $19.7 trillion), while the global stablecoin market is valued at only about $300 billion. This suggests that banks have not yet faced large-scale deposit outflows.

For the ECB, another core challenge is that most stablecoins are issued in U.S. dollars, a currency over which it has no control.

If dollar-denominated stablecoin assets gain broader adoption in Europe, policy changes outside the eurozone could influence liquidity and consumption conditions within the region, thereby diluting the ECB's policy influence.

The report noted: "Foreign monetary conditions could be 'imported' into the euro area via stablecoins." It further added that this would weaken the ECB's control over financial conditions, particularly during periods of market stress.

Economists also indicated that stress on banks would, in turn, diminish the ECB's effectiveness—since the eurozone economy relies on banks to transmit interest rate changes to the real economy, making monetary policy outcomes harder to predict.

The report concluded that these risks justify the need for targeted regulation of stablecoins. Measures such as enhancing transparency requirements for stablecoin reserves, establishing reliable redemption guarantee mechanisms, setting adequate capital buffers to absorb losses, and implementing effective supervisory oversight could help mitigate associated financial risks.