The European Central Bank published a Working Paper assessing when stablecoins can operate as fungible retail means of payment, concluding that stablecoins issued by different issuers and on different blockchains can only be fungible to the extent that central bank money remains the anchor of the monetary system. The paper frames fungibility as requiring settlement finality, interoperability and seamless convertibility into central bank money or a quasi-ultimate settlement asset. Applying this framework to stablecoin designs, it finds that tokenised funds and off-chain collateralised stablecoins can be fungible under specified conditions, including credible ledger settlement finality, interoperability with other payment and settlement technologies, and robust governance and regulatory frameworks. On-chain collateralised stablecoins are described as prima facie fungible only if the on-chain collateral can be readily converted into higher-tier money, while algorithmic stablecoins are deemed not fungible means of payment because they do not provide a claim that enables credible convertibility; the paper notes total stablecoin issuance of around USD 250 billion as of end-June 2025 (just over 1% of USD M2).
European Central Bank 2025-09-16
European Central Bank working paper argues stablecoin fungibility depends on settlement finality interoperability and convertibility into central bank money
The European Central Bank's Working Paper evaluates stablecoins' fungibility as retail payment means, emphasizing central bank money as the monetary system's anchor. It concludes that tokenised funds and off-chain collateralised stablecoins can achieve fungibility under conditions like credible settlement finality and interoperability, while algorithmic stablecoins lack fungibility due to insufficient convertibility claims. Total stablecoin issuance was approximately USD 250 billion as of June 2025.