A day after unveiling Pontes, its system for settling tokenised assets in central bank money, the ECB has set out how it wants Europe’s crypto rulebook rewritten.
The response, published on Tuesday by the European System of Central Banks, which groups the ECB with the EU’s national central banks, argues for tougher rules on stablecoins, staking and crypto firms.
It feeds into the European Commission’s review of the Markets in Crypto-Assets Regulation, known as MiCA, the EU’s rulebook for cryptocurrencies and the firms that trade them.
MiCA has applied since December 2024, and the last transitional deadline for existing operators expired on 1 July, including Binance, the world’s largest exchange, to stop serving European customers.
The Commission’s consultation will close on 30 September, a month later than planned.
The central banks’ recommendations are not binding, and the Commission will weigh them alongside other responses before deciding whether to reopen the law.
EU diplomats have told Euronews they expect a revision in 2027, which would need the approval of the European Parliament and member states.
Stablecoins are cryptocurrencies designed to hold a steady value, usually by tracking the US dollar.
MiCA already bars both issuers and crypto exchanges from paying interest on them, and the central banks want it kept that way.
“The payment of stablecoin remuneration should continue to be prohibited,” the ECB response says.
Their targets are the workarounds. Some exchanges, the response notes, offer crypto lending, borrowing and staking, “thereby replicating the economic effect of interest payments through ancillary or unregulated services.”
The central banks want the ban extended to those activities and to indirect rewards, such as certain loyalty-programme benefits, calling it “a clear legislative priority”.
Washington has gone the other way.
The 2025 GENIUS Act banned US stablecoin issuers from paying interest but left exchanges free to offer rewards, and whether to close that gap became one of the most contested fights over the CLARITY Act, the landmark crypto bill that fell ten votes short in the US Senate on 15 September.
The central banks want stronger tools against tokens pegged to foreign currencies.
It would be useful, they say, if authorities could impose “a prohibition to issue new tokens, as well as an obligation to redeem existing tokens” on issuers where central banks judge that the tokens pose a threat, including to financial stability.
More broadly, they see limited benefit in stablecoins for everyday payments at home, given instant bank transfers and the planned digital euro. They warn that MiCA provides no legal basis for issuing the same stablecoin both inside and outside the EU.
In a bank run, European reserves could end up paying holders elsewhere, while “EU authorities cannot determine with certainty how many tokens are held within the Union.”
Eurozone central banks also do not currently let stablecoin issuers hold customer funds with them.
A token fully backed by central bank money, the response warns, “would effectively result in a ‘synthetic’ central bank digital currency” that is essentially a private imitation of the digital euro and could, in theory, drain deposits from commercial banks, especially under stress.
On staking, where users lock up crypto in exchange for rewards, the response is blunt: “Staking, lending and borrowing of crypto-assets should be regulated at Union level.”
Where a firm takes customers’ crypto and promises to return it, potentially with a premium, the central banks argue that the arrangement can be “comparable to the taking of repayable funds”, in the language of banking.
The same applies to decentralised finance, or DeFi, where lending and trading run on automated software rather than through a company.
MiCA exempts fully decentralised services but never defines the term, and the central banks cite studies showing that full decentralisation is rarely, if ever, achieved, leaving it unclear who is in control.
The central banks also back a Commission proposal to move licensing and supervision of crypto firms from national regulators to ESMA, the EU’s markets watchdog.
Currently, one national licence covers the whole bloc, which was the route Binance originally pursued in Greece.
The Wall Street Journal reported last week, citing people familiar with the discussions, that ECB President Christine Lagarde urged Greek Prime Minister Kyriakos Mitsotakis not to approve Binance’s application because of the exchange’s past compliance problems and fears that its scale could deepen the use of US dollar stablecoins in Europe.
A senior Greek regulator, according to the newspaper, told the exchange that Lagarde wanted the decision delayed until ESMA took over, the same shift the central banks endorse in Tuesday’s response. Binance withdrew the application on 24 June.
Neither the ECB nor the Greek regulator has confirmed the account. The ECB, which has no formal role in licensing crypto firms, declined to comment, while Binance said it would “not comment on speculation”.
Europe’s central banks now have a working bridge into tokenised markets.
Launched on Monday, Pontes lets wholesale transactions in tokenised assets, meaning stocks, bonds and other instruments recorded as digital tokens on distributed ledgers, to settle in the safest form of money available — reserves held at the central bank itself.
It matters because the absence of a risk-free settlement asset has been one of the main barriers holding blockchain technology back. Without it, tokenised trades have typically settled in commercial bank money or stablecoins, carrying credit risk that large institutions are reluctant to accept.
“The Eurosystem is working to enable a more integrated, innovative and resilient European financial market in the digital age,” said ECB President Christine Lagarde.
Thirteen institutions have completed onboarding and are ready to use the system immediately, including Deutsche Bank, Santander, Société Générale, KfW and the European Investment Bank, alongside four ledger operators including Clearstream.
The ECB also intends to become a user itself.
In a separate announcement, it said it has begun preparatory work to invest a small portion of its own funds in tokenised securities, with purchases settled through Pontes.
The initial focus will be euro-denominated debt issued by euro area governments, regional authorities, agencies and European supranational institutions.
The own-funds portfolio sits outside monetary policy and generates income to cover the bank’s running costs. No amount was specified, and the Executive Board will decide on timing once the groundwork is done.
“Pontes brings tokenised markets another step closer to the core of the euro area’s financial infrastructure,” said Richard Baker, founder and CEO of Tokenovate, which builds technology to help financial institutions automate post-trade processing, collateral management and tokenised settlement.
Baker noted the service will initially run within existing market hours, but that “the longer-term opportunity is to support more continuous, potentially 24/7, settlement.”
That gap is where Europe is playing catch-up.
American markets have moved faster as the New York Stock Exchange is building a blockchain-based venue for trading tokenised shares and funds around the clock, and BlackRock has run a tokenised money market fund since 2024.
Pontes itself will only reach full capability, with longer operating hours and enhanced features, by 2028.
The two sides are also taking different routes.
Washington, under US President Donald Trump, abandoned plans for a Federal Reserve digital currency and backed privately issued stablecoins instead. On the other hand, Frankfurt is betting that public central bank money should sit at the centre.
Pontes is aimed at banks and markets, not consumers. The retail equivalent, the digital euro, would let the public make everyday payments directly in central bank money.
That project is further from reality.
The European Parliament’s economic committee approved its position in June, opening negotiations with member states, and final legislation is targeted for the end of this year.
If that holds, a pilot involving 36 payment providers will begin in September 2027, with first issuance possible in 2029.
Frankfurt has tightened again.
The European Central Bank’s governing council lifted the deposit facility rate from 2.25% to 2.5% on Thursday. It is the second hike since 11 June, when the ECB moved for the first time in three years.
The ECB sets monetary policy for the eurozone through three key interest rates, with the deposit facility rate serving as its main policy benchmark.
The main refinancing rate was lifted to 2.65% and the marginal lending facility to 2.9%.
In its statement, the central bank noted that “the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,” while ensuring that “with today’s decision, the Governing Council remains well positioned to navigate the uncertainty caused by the conflict.”
The ECB staff projections continue to estimate that headline inflation will average 3% this year. However, it has revised up the expectations for 2027 and 2028 to 2.5% and 2.1% respectively, compared with June.
The decision follows an August inflation reading of 3.3%, up from 2.9% in July and the highest since September 2023.
Energy costs did nearly all the work, with energy inflation jumping to 14.3% from 10.3%, as fighting around the Strait of Hormuz kept crude supply constrained. The problem persists as Brent crude crossed $100 a barrel again on Wednesday due to renewed exchanges of fire between the US and Iran.
Underneath, the picture is calmer.
Core inflation, which strips out energy, food, alcohol and tobacco, actually fell to 2.4% from 2.5% in August, while services inflation, the component most sensitive to wages, dropped to 3% from 3.3%. There is still little sign that expensive energy is spreading into the rest of the economy.
That distinction has been central to the ECB’s own thinking.
In a paper published earlier this month, its economists found that adverse energy supply factors accounted for around 90% of the rise in energy inflation between January and May of this year.
“This time the energy supply shock dominates, while demand and public policy stimulus have minor roles,” the economists wrote, contrasting it with the 2021-22 surge that prompted a far more aggressive response.
The eurozone inflation average conceals a wide spread.
August inflation ran at 4.5% in Spain, 2.9% in Germany and 2.7% in France, three economies facing the same energy shock with markedly different outcomes.
Growth complicates matters further.
The bloc has held up better than expected, but resilience is not overheating, and even at 2.5% the deposit rate remains within the range the ECB considers neutral. Going further would mean deciding that policy must actively restrain the economy.
Christine Lagarde had signalled this move in July, when the council held rates but instructed staff to model oil and gas scenarios ahead of September.
“The burden of proof is on data,” Lagarde said then, adding that “the full inflationary impact of the energy shock has yet to play out.”
Thursday’s decision comes alongside fresh staff projections, though their cut-off date falls roughly two weeks before the meeting, meaning neither the latest leg higher in oil nor the surge in European government bond yields to 15-year highs will be reflected.
Attention now turns to Frankfurt’s peers.
The Federal Reserve will announce on 16 September and the Bank of Japan on the 18, with both expected to consider hikes of their own.
Meanwhile, the Bank of England will decide on 17 September and is expected to hold rates as it currently maintains a much higher benchmark than the rest at 3.75%.
Frankfurt will almost certainly move on Thursday.
Market odds put a quarter-point hike at close to certainty, which would lift the European Central Bank’s deposit rate from 2.25% to 2.5%.
What makes this a difficult call is not whether the ECB acts, but why, and whether the reasoning survives contact with the data.
The path here has been compressed as the ECB raised rates on 11 June for the first time in three years, lifting the deposit rate from 2% to 2.25% in response to the energy shock from the Iran war, and then held rates in July while Christine Lagarde pointed hawkishly towards September.
August’s inflation figures removed any remaining doubt with eurozone inflation hitting 3.3%, up from 2.9% in July and the highest since September 2023, as energy inflation surged to 14.3% from 10.3%.
Look beneath the headline inflation and the picture inverts.
Core inflation, which strips out energy, food, alcohol and tobacco, actually fell to 2.4% from 2.5%. Services inflation, the component most closely tied to wages and domestic demand, dropped to 3% from 3.3%.
In other words, there is still little evidence that expensive energy is feeding through into everything else. That is what economists mean by “second-round effects”, and their absence is the strongest argument against tightening.
The ECB’s own research also supports the distinction.
In a paper published on Tuesday, ECB economists found that adverse energy supply factors, driven by geopolitical tensions, accounted for around 90% of the rise in energy inflation between January and May.
“This time the energy supply shock dominates, while demand and public policy stimulus have minor roles,” the economists wrote, adding that “these differences are key to explaining why monetary policy responses differ.”
The 2021-22 surge, by contrast, came from “a combination of large and unprecedented supply and demand-side factors,” which is why the ECB then “raised interest rates forcefully and persistently” rather than gradually.
The national spread across the EU further underlines how uneven this is.
August inflation ran at 4.5% in Spain, 2.9% in Germany and 2.7% in France, three economies facing the same energy shock with very different results, all governed by one interest rate.
Economic growth is the other complication.
The eurozone has proved more resilient than expected, which ING attributes partly to luck, partly to Asian competitors suffering more from the closure of the Strait of Hormuz and partly to fiscal stimulus. However, resilience does not mean the growth could not, or should not, accelerate.
ING characterises Thursday’s expected move as “another insurance rate hike”, or “a dovish rate hike,” noting that even at 2.5% the deposit rate sits within the range the ECB itself considers neutral.
Going further would mean deciding restrictive policy is required, which would be a different judgement entirely.
The ECB is not acting alone, and that matters for the euro.
The Federal Reserve meets on 15 and 16 September, with Chair Kevin Warsh having used his first Jackson Hole address to argue that financial conditions are not restrictive and underlying inflation has not improved.
Investors had put the odds of a US hike at roughly one in three before those remarks, but now price a 60% chance the Fed hikes the target range from 3.5%-3.75% to 3.75%-4%.
The Bank of Japan follows on 17 and 18 September, with markets pricing an 80% to 90% chance of a move to 1.25%.
On the other hand, the Bank of England is expected to hold rates at 3.75% on 17 September as it currently maintains a much higher interest rate than the rest.
If the Fed were to hike while the ECB held, the dollar would strengthen against the euro and that would cut both ways for Frankfurt.
A weaker euro makes European exports more competitive, but it also makes imports dearer, and since oil and gas are priced in dollars, it would push up precisely the energy costs driving the inflation problem in the first place.
Overall, we can assume a September rate hike is a done deal for the ECB but we can also project that it won’t solve the central bank’s current dilemma of raising borrowing costs against an inflation it cannot reach, while withdrawing support an economy could still use.
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Borrowing costs across some of Europe’s biggest economies have surged to their highest levels in more than 15 years, as a renewed sell-off in global bond markets gathers pace.
The global bond rout pushed Germany’s benchmark borrowing costs to a 15-year high on Tuesday, with France, Italy and the Netherlands all seeing similarly steep rises.
Germany’s 10-year Bund climbed above 3.36% on Tuesday, according to Trading Economics. Later, the yield went down a bit and traded at around 3.34%.
Bond yields move inversely to prices. When investors sell bonds, prices fall, and because a bond’s fixed interest payment becomes worth more relative to that lower price, the effective yield rises.
In short — the more bonds get sold, the more it costs governments to borrow.
Sovereign debt came under renewed pressure as rising oil prices and increasingly hawkish signals from major central banks reinforced bets that interest rates will stay higher for longer.
The yield on Germany’s 30-year Bund surged above 3.84%, also its highest level since 2011. The French 10-year OAT yield rose to its highest level since November 2008, trading slightly above 4.215% at around 10.45 CEST on Tuesday. The equivalent Italian yield was trading slightly lower at 4.188 at the same time.
At the same time, the Dutch 10-year government bond yield increased to 3.43%, its highest level since May 2011. Spain’s 10-year yield climbed above 3.80%, its highest level since November 2023.
Investors are concerned that rising energy prices will fuel inflation around the world, potentially prompting interest-rate increases by central banks in the US, Japan and the eurozone, among others.
These concerns were reinforced in the eurozone on Tuesday morning, as the latest flash inflation data from Eurostat showed that energy prices were 14.3% higher than a year earlier. This helped push eurozone inflation to 3.3% in August, up from 2.9% in July. This is significantly above the ECB’s 2% target.
The central bank is due to hold its next monetary policy meeting next week, and most investors are betting on a 25-basis-point rate hike.
Leo Barincou, senior economist at Oxford Economics, said: “With inflation still accelerating, the ECB is all but certain to hike at next week’s meeting, in line with our expectations.”
Looking at the largest European economies, analysts say Germany’s Bund has moved largely in line with global benchmarks, while France faces an additional risk premium because of its political and fiscal outlook.
French 10-year borrowing costs have exceeded Italy’s for much of the summer, as France increasingly replaces Italy as the main focus of European debt concerns.
According to the IMF, France’s gross government debt is projected to reach 118.4% of GDP this year and 120.5% in 2027. France currently has the third-highest debt-to-GDP ratio in the EU, after Greece and Italy.
The Banque de France expects the budget deficit to reach 5.2% of GDP this year. Difficult budget negotiations ahead of the 2027 presidential election have raised doubts about the government’s ability to reverse this trend.
Robert Timper, BCA’s chief fixed-income strategist, previously told Euronews Business: “We have held the view for some time that France is the country in the euro area with the most unsustainable fiscal outlook, and its borrowing cost should reflect that.”
“To get back to a sustainable fiscal path, France needs to do substantial reforms, which will be unpopular as they will curtail welfare spending,” Timper said. “A large political majority is therefore necessary for such reforms, or a bond market riot will force reforms.”
Expectations of persistently high inflation and rising borrowing costs also pushed the yield on 10-year US Treasuries to its highest level since January 2025. The yield on the 10-year Treasury was trading at around 4.78% on Tuesday.
In the US, higher energy prices have added to already stubborn inflation, which remains well above the Federal Reserve’s 2% target. Inflation has weighed on household spending and consumer confidence, complicating the Fed’s decisions on interest rates.
According to Bloomberg, traders raised the probability of a September US rate hike to about 70%, extending a repricing that began last week when Federal Reserve Chair Kevin Warsh doubled down on a pledge to tame inflation.
The sell-off also spread to Asia, where Japan’s benchmark 10-year government bond yield reached 3.00% for the first time since 1996.
Government bonds have traditionally been seen as safe-haven assets during periods of uncertainty.
That role is being tested as investors become increasingly concerned that global conflicts and higher energy prices could produce a prolonged period of stagflation — a combination of high inflation and weak or zero economic growth.