By Reuters

(Reuters) - European Central Bank President Christine Lagarde expressed scepticism on Friday over the need for stablecoins pegged to the euro, saying ​they may hamper the ECB's own work and exacerbate any financial ‌turmoil.

A number of large euro zone banks, including Societe General e (SOGN.PA), have been working on crypto assets linked to the single currency, trying to make inroads in a market dominated by the ​U.S. dollar in a move that some hope will boost the euro's appeal.

But Lagarde ​said the case for euro-denominated stablecoins was "far weaker than it appears" ⁠because they are subject to runs during market turmoil and they weaken ​the ECB's ability to reach all corners of the economy with its interest-rate policy.

"These ​trade-offs ... outweigh the short-term gains in financing conditions and international reach that euro-denominated stablecoins might provide," she told an audience in Spain.

"If we want to strengthen the international appeal of ​the euro, stablecoins are not an efficient way of doing so."

She cited a drop ​in the value of USD Coin during the collapse of Silicon Valley Bank as an ‌example ⁠of the risks, and pointed to an ECB research finding that large-scale deposit substitution for stablecoins would weaken lending to firms and the transmission of monetary policy.

Instead, Lagarde singled out tokenised commercial bank deposits as a better route, arguing they ​were safer than ​stablecoins but could ⁠also circulate on blockchain.

The comments put Lagarde at odds with the European Commission and governments including that of France, which ​see euro stablecoins as a tool for boosting the euro's ​international status.

European ⁠rules require issuers of stablecoins to hold at least 30% of reserve assets in bank deposits, while the rest must consist of low-risk, highly liquid financial instruments, ⁠such as ​government bonds.

In an interview with Reuters this week, ​Bundesbank board member Michael Theurer said tokenised deposits and stablecoins were both "crucial", but acknowledged the risk ​associated with the latter.

Reporting by Francesco Canepa; Editing by Alexandra Hudson and Clarence Fernandez

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