ECB paper warns widespread stablecoin adoption could undermine euro monetary policy by diverting deposits from banks and importing foreign liquidity conditions. The analysis highlights risks to euro-area banks if stablecoins linked to foreign currencies like the US dollar gain traction, potentially constraining lending capacity and disrupting policy rate transmission.

Authors emphasize that risks would be amplified if stablecoins dominated by non-euro instruments increase banks' reliance on foreign funding, effectively importing external monetary conditions orthogonal to the ECB's stance. This comes amid growing European lender development of euro-based stablecoins, raising regulatory concerns about financial stability and monetary sovereignty.