The European Central Bank (​ECB) recently published a working paper titled, "Stablecoins and monetary policy transmission." Its summary states, "​Digital assets are becoming an increasingly visible part of the financial system. Among them, stablecoins, i.​e. crypto-​assets designed to maintain a stable value, usually by being linked to a major currency such as the U.​S. dollar or the euro, have grown rapidly. Unlike volatile crypto-​assets such as Bitcoin, stablecoins are often marketed as digital equivalents of bank deposits. Currently, their use is primarily linked to increasing demand for the settlement of tokenised assets, reflecting the growth of crypto-​asset trading ecosystems. While stablecoins promise faster and cheaper payments and greater financial innovation, their broader use as a means of payment or as a store of value raises important questions about financial stability, the role of banks, and the effectiveness of monetary policy. This study examines these issues with a focus on the euro area." The ECB asks, "How do stablecoins affect banks? The first key finding is that growing use of stablecoins can lead people and firms to move money out of traditional bank deposits and into digital assets. Banks rely heavily on deposits as a stable and low-​cost source of funding to support lending to households and businesses. When deposits decline, banks may be forced to rely more on wholesale or market-​based funding, which is typically more expensive and less stable. Our analysis shows that increasing interest in and attention toward stablecoins are associated with a measurable decline in retail bank deposits and a reduction in bank lending to firms. In other words, stablecoins can reduce the amount of credit banks provide to the real economy. Importantly, these effects are nonlinear and depend critically on the scale of stablecoin adoption, their design features, and their regulatory treatment." They comment, "​What does this mean for monetary policy? The second finding concerns how monetary policy works. In the euro area, banks play a central role in transmitting interest rate changes to households and firms. When deposits shift into stablecoins, this transmission mechanism changes. We find that stablecoin adoption interfere with multiple monetary policy transmission channels, potentially weakening the predictability of policy actions." The summary concludes, "These findings highlight the importance of thoughtful regulation. Measures such as stronger transparency requirements for stablecoin reserves, robust redemption guarantees, adequate capital buffer to absorb losses and effective oversight can reduce financial risks. At the same time, initiatives such as central bank digital currencies may offer a public alternative that preserves monetary sovereignty while supporting innovation. Design choices are central to understanding the structural differences between these instruments. In the European context, for example, holding limits crystallize the distinction between stablecoins and a digital euro. By capping individual holdings, the digital euro is explicitly framed as a transactional instrument, thereby protecting commercial bank deposits and reinforcing financial stability. These limits reduce the risk of large-​scale deposit migration into central bank money during periods of stress and help preserve the effectiveness of monetary policy transmission."

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