ECB stablecoin concerns centre on bank lending, Nodu chief says

The European debate over stablecoins is being shaped by a balance-sheet concern: fully backed tokens do not support bank lending in the way commercial deposits do, according to Alex Novozhenov, chief executive and co-founder of Nodu. In a Finextra opinion post, Novozhenov said that distinction helps explain why the European Central Bank has treated stablecoins as a potential monetary-policy risk rather than only as a payments innovation.

Novozhenov said Europe’s Markets in Crypto-Assets regulation, known as MiCA, created a common framework for crypto-assets and stablecoins, replacing a more fragmented national approach. He argued, however, that regulation does not by itself create usable payment infrastructure, because banks, payment service providers, fintechs and corporate treasuries still need systems for accounts, screening, minting, redemption, liquidity, anti-money-laundering controls, reporting, reconciliation and conversion back into fiat money.

Different forms of digital money

The Nodu chief drew a distinction between three instruments often grouped together in public discussion. He described the digital euro as public money intended to sit alongside cash, stablecoins as privately issued instruments used for settlement, cross-border flows, digital-asset markets and programmable payments, and tokenised deposits as commercial bank money adapted for programmable environments.

That difference matters because tokenised deposits remain bank liabilities and preserve the relationship between the depositor and the bank, Novozhenov said. By contrast, a stablecoin backed close to one-for-one by reserve assets is not re-lent through the banking system, limiting its role in credit creation.

Novozhenov said this makes tokenised deposits a direct strategic alternative for banks. If a bank can make its own deposits programmable, it has less reason to outsource that function to an external stablecoin issuer, he argued.

Monetary transmission and credit

Novozhenov linked the ECB’s concerns to comments by President Christine Lagarde, saying her argument is that even euro-denominated stablecoins could weaken the central bank’s control over monetary policy if they draw deposits away from commercial banks. Fewer deposits would reduce bank funding available for lending, which could make rate decisions less effective in reaching households and businesses, according to his analysis.

He noted that EU banks must hold minimum reserves equal to 1% of most deposit liabilities at the central bank, while lending is more directly constrained by capital requirements, including roughly 8% total capital under CRR and Basel III. In that structure, deposits can support multiple rounds of lending, and each new loan can create another deposit elsewhere in the system, Novozhenov said.

Stablecoins operate differently under MiCA because they must be backed close to one-for-one by reserve assets, according to Novozhenov. He cited a Bruegel research note as making the broader point that moving deposits into instruments that cannot create credit can pose a risk to financial intermediation, apart from operational risks within stablecoins themselves.

Novozhenov also said bank-backed euro stablecoins would not fully address the ECB’s concern if they are issued under e-money or MiCA-style safeguarding rules, because they would still require near one-for-one backing. Tokenised deposits, he argued, are structurally different because they remain on bank balance sheets.

Policy disagreement inside Europe

The position is not uniform across the Eurosystem. Novozhenov pointed to Bundesbank President Joachim Nagel as taking a more favourable view, arguing that tightly regulated euro stablecoins could strengthen Europe’s payment sovereignty and reduce reliance on dollar-linked tokens.

Novozhenov said stablecoins can reduce settlement frictions and support programmable transactions, but regulated institutions still require reliability, auditability, liquidity, compliance and robust redemption arrangements. He argued that Europe’s opportunity lies in infrastructure that connects stablecoins, tokenised deposits, fiat accounts and eventually central bank digital money while preserving the controls used in regulated finance.

This story draws on original reporting from Finextra Research.