Stablecoins are not stable if they are owned by inherently risk-taking, unstable commercial banks.
Sergi Basco is an Economics professor at the University of Barcelona.
Cross-posted from The Conversation
On 25 September 2025, it was announced that 9 European banks, including UniCredit, ING and CaixaBank, have launched a consortium to issue a euro stablecoin – a cryptocurrency with a value pegged to the euro.
While stablecoins are less volatile than regular cryptocurrencies like bitcoin, they are not, despite their name, inherently stable. Allowing banks to create their own could further destabilise the eurozone’s already turbulent economy, and will amplify the impacts of any future market crash.
Cryptocurrency, and stablecoins in particular, can be understood as digital casino tokens. Imagine you go to Casino A. At the entrance, they give you a token (with the label of the casino) in exchange for a euro. You spend a few hours in the casino, get lucky, and end the night with a Casino A token in your pocket.
The following night you go to Casino B. At the entrance, you realise that you don’t have any cash, only the Casino A token. The cashier in Casino B asks his boss whether he can accept tokens from Casino A. The boss says, “of course, I know Casino A, it’s a healthy business”. They then swap your Casino A token for a Casino B token. The Casino B boss accepts Casino A’s token for one reason alone: trust.
Stablecoins are built on trust
There are two takeaways from this story. First, being able to use the token from Casino A in Casino B is a good thing. Otherwise, you would have needed to go to Casino A, convert the token into a euro, go back to Casino B, and exchange it for a Casino B token. Directly exchanging the tokens reduces transaction costs.
Second, tokens are substitutes for cash. If our hypothetical casinos trust one another, it doesn’t matter who issues the token – a token from either casino is always worth one euro.
Problems arise when casinos start distrusting each other. In our example, the boss in Casino B could have said “you can accept it but at a discount, give him only half a Casino B-token.” They might even say “Casino A? No way, their tokens are worthless!”
Now, imagine that these tokens are digital instead of physical, and can be sent instantaneously, much like an email. This is a stablecoin.
Stablecoins can lose value quickly
As stated above, 9 eurozone banks are planning to issue a euro stablecoin. We can think of these banks as Casino A in our example. You will be able to go to one of these banks and purchase “their stablecoin” in exchange for one euro – most likely more than one euro (banks will want to earn a fee from it).
If everyone trusts these banks, one of “their coins” and one euro will have the same value. The main advantage of “their coin” is that you will be able to make transfers instantaneously. Today, a bank transfer, even within a country, may take up to three days.
A euro stablecoin might seem great, but there is one major condition to maintaining its value: everyone has to trust these particular banks. We know that this isn’t always the case – people can quickly lose faith in banks, and banks often don’t even trust each other. In a financial crisis, trust can vanish overnight.
We don’t need to look far into the past for evidence of this. In 2008, after the collapse of Lehman Brothers, interbank lending (banks lending each other money) froze. Banks were not sure about the quality of other banks’ assets, so they were afraid to lend them money. If they were afraid of lending a bank money, they certainly wouldn’t be happy to accept “their coin” without a hefty discount.
Assets are not a safeguard
Champions of stablecoins will undoubtedly argue that we don’t need to worry because there will be regulations making sure that the banks have enough assets to back this token. The banks would be required to have liquid assets that match the value of the tokens they issue.
However, history has shown us that the price of assets can unexpectedly decline during a financial crisis. Before 2007, investors thought that subprime mortgage backed securities (MBS) were as safe as US government bonds. Similarly, Spanish government bonds were thought to be as safe as German bonds until August 2007.
This loss of trust led to the market crash of 2008, but it would have been far worse with stablecoins in the picture. If there had been stablecoins in 2008, holders of Spanish government debt (or subprime MBS) would not only have seen the value of their own assets collapse, but also those of all the people who had decided to place their savings in stablecoins. It would have multiplied the crash’s already devastating impact – a “Great Great” Recession.
An ECB-issued stablecoin
There are potential benefits to having digital currency. Imagine you have a deposit in the European Central Bank (ECB), and you can use its token to make instantaneous transactions (from buying coffee to transferring it to your daughter studying abroad). No one would worry that the ECB could the run out of euros, because they’re the ones who print them!
A digital euro could also be adopted by other countries, which would make the euro a real contender against the US dollar as a reserve currency. The US has already precluded itself from making such a move – the Genius Act, which regulates stablecoins within the US, prohibits the Federal Reserve from creating digital dollars.
Under these circumstances, the choice seems obvious. An official, ECB-backed digital euro is a much better proposition than a consortium of private banks competing to promote their own, inherently unstable, digital coin.
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