Lagarde Says Foreign-Issued Stablecoins Could Prompt EU to Require Equivalence Regimes to Protect Euro Investors

• Require full backing and redemption at par for stablecoins used by EU investors.

• Enforce robust equivalence regimes when issuance involves non-EU entities and MiCA-covered firms.

• Monitor cross-border reserve locations and contingency liquidity to prevent runs; reference: European Central Bank, ECB remarks.

Stablecoin regulation: EU must require full backing and redemption at par for foreign-issued stablecoins; read the policy implications and next steps.

What is stablecoin regulation and why does it matter for the EU?

Stablecoin regulation defines rules that ensure stablecoins are redeemable, sufficiently backed and supervised to protect consumers and preserve financial stability. EU policymakers, led by the ECB, say rules must close gaps for foreign-issued stablecoins that interact with Markets in Crypto-Assets (MiCA) regimes.

How should the EU handle foreign-issued stablecoins that interact with MiCA-covered entities?

EU regulators should require a clear equivalence framework when a MiCA-covered entity and a non-EU issuer jointly create a stablecoin. This includes legal certainty on redemption at par, audited full reserves, cross-border supervisory cooperation and fail-safe liquidity backstops to prevent investor losses in runs.

Amid the US set to implement a stablecoin framework after passage of the GENIUS Act, EU officials are looking at the implications of foreign-issued stablecoins.

Christine Lagarde, president of the European Central Bank (ECB), is urging policymakers to address regulatory gaps for stablecoins, particularly where issuance occurs outside the robust Markets in Crypto-Assets (MiCA) framework in the European Union.

In prepared remarks to the ninth annual conference of the European Systemic Risk Board, Lagarde called for measures when a MiCA-covered entity and a non-EU firm jointly issue stablecoins. She emphasized that such arrangements require clear equivalence standards and supervisory cooperation.

Lagarde added that foreign-issued stablecoin issuers should not operate in the EU unless there are “robust equivalence regimes” at the source. These regimes should ensure EU investors can always redeem holdings at par value and that issuers fully back their coins with high-quality reserves.

“In the event of a run, investors would naturally prefer to redeem in the jurisdiction with the strongest safeguards, which is likely to be the EU, where MiCAR also prohibits redemption fees,” Lagarde said. “But the reserves held in the EU may not be sufficient to meet such concentrated demand.”

A stablecoin is a cryptocurrency designed to maintain a stable value by pegging it to an asset like the US dollar or the euro. Effective stablecoin regulation requires enforceable redemption rights and transparent reserve holdings.

ECB policymakers continue to explore a potential digital euro, a central bank digital currency (CBDC) that could interact with private stablecoins. The rollout of US stablecoin rules may influence the pace and design of the digital euro.

The US Congress passed legislation establishing a framework for stablecoins in July. That law is expected to benefit issuers of US-pegged coins and could shift cross-border flows and data concentration toward US-based platforms. Sources referenced in the public debate include the European Central Bank and public statements by ECB executive board members.

US, EU and China: are they competing for the stablecoin market?

Regulatory moves in the US and the EU, as well as developments in China, suggest a global contest over stablecoin and digital currency leadership. Reports in August indicated China may consider a renminbi-pegged stablecoin alongside its digital yuan efforts, although officials have not confirmed such plans.

ECB executive board member Piero Cipollone has warned that US policy could lead to euro deposits moving to the United States and strengthen the dollar’s role in cross-border payments. That risk increases the strategic importance of clear EU rules on foreign-issued stablecoins and potential CBDC deployment.

Frequently Asked Questions

Can foreign-issued stablecoins be used in the EU under current rules?

Not automatically. Use depends on whether issuers meet MiCA equivalence, supervisory cooperation and redemption-at-par guarantees. The ECB calls for explicit rules to prevent regulatory arbitrage and protect EU investors.

What protections should EU investors expect from stablecoin issuers?

EU investors should expect full, audited reserves, legal rights to redeem at par, transparent reserve reporting and access to remedies in EU courts. Regulators may also require liquidity backstops for stress events.

Key Takeaways

• Policy gap identified: ECB warns that current frameworks may not cover foreign-issued stablecoins interacting with MiCA entities.
• Core protections: Full backing, redemption at par and equivalence regimes are essential to prevent runs.
• Geopolitical stakes: US, EU and China actions on stablecoins and CBDCs can shift payment system dynamics and deposit flows.

Conclusion

EU stablecoin regulation must close cross-border gaps by demanding full reserves, enforceable redemption rights and robust equivalence regimes for foreign-issued stablecoins. With the US advancing its framework and China considering renminbi-linked options, coordinated EU policy and potential digital euro decisions will shape financial stability and market structure. COINOTAG will update this report as official guidance and legislation evolve.