ECB study warns growing stablecoin use may erode bank deposits and blunt monetary policy in Europe

The European Central Bank, in a new working paper titled "Stablecoins and Monetary Policy Transmission" released on Tuesday, warns that rising stablecoin adoption is associated with declining retail bank deposits and weaker lending to firms. The study finds that as households and companies move funds from bank deposits into stablecoins, banks may face higher funding costs and monetary policy transmission to the real economy could be disrupted, especially given the dominance of US dollar-pegged stablecoins.