In a blog post, “From hype to hazard: what stablecoins mean for Europe”, Jürgen Schaaf, a European Central Bank Adviser, suggested that one potential response to Trump’s stablecoin push is to provide more support for regulated euro stablecoins.
He positioned stablecoins as complementing the digital euro project, while maintaining that the CBDC will help defend Europe’s monetary sovereignty. This openness to private payment initiatives alongside public ones is refreshing.
Given the ECB is moving forward on wholesale DLT settlement projects using central bank money, this was an area where he was particularly upbeat. He wrote that “increased use of distributed ledger technology (DLT) in wholesale financial markets is critical to maintaining relevance in the future financial infrastructure.”
One shouldn’t misconstrue the blog post as a resounding endorsement of stablecoins. It definitely was not. The article represents Mr Schaaf’s personal opinion, rather than formal policy. And large parts were spent highlighting stablecoin risks.
Nonetheless, the post recognizes that stablecoins are breaking out of their crypto niche and merit a response beyond pure warnings. On that point, the article emphasized the dollar threat to euro monetary sovereignty.
Dollar stablecoins and monetary sovereignty threats
As context, the digital euro has not yet received regulatory approval. And no draft CBDC law has been published since the process restarted after the mid-2024 EU elections. Monetary sovereignty threats could be an effective lever to encourage more support for the CBDC. But exploring each area – payments, savings and settlement – highlights the scale of the risk is small for areas that overlap with the digital euro.
On the payments front, the likelihood of citizens wanting to use dollars to pay for local goods is probably not that high. And MiCA regulations already prevent this avenue from scaling.
On the savings front, there’s a concern that money will flow from European bank accounts to US stablecoins to earn a better rate of interest. However, stablecoins available in the EU under the MiCA regulations are not allowed to pay interest. This restriction applies to both stablecoin issuers and crypto service providers such as exchanges, regardless of the stablecoin’s currency. This is one area that differs from the US GENIUS Act, which bans stablecoin issuers paying interest, but allows third parties such as exchanges.
Hence, the average person is less likely to shift currencies to earn extra interest, because they’d have to jump through hoops like using a DeFi platform or an offshore exchange with no EU presence. An exchange without a European presence might be a riskier one. That’s not to mention the foreign exchange risks. Additionally, EU residents can already earn higher interest on dollars through UCITS money market funds.
Areas where threats exist
A related and perhaps bigger threat comes from startups like France based Spiko offering tokenized money market funds (MMFs) to businesses in a low friction manner. The attractive rates easily beat bank accounts. The dollar is also the dominant currency for tokenized MMFs, yet Spiko’s euro fund is more than twice as popular as the dollar one.
An area that could be a bigger threat is what Mr Schaaf referred to as “emerging institutional use cases” for delivery versus payment settlement and interbank payments. That’s because this topic was ignored by MiCA regulations. The law put limits on retail use cases of stablecoins in non European currencies, to limit monetary sovereignty threats. But those safeguards don’t apply to the financial markets. The central bank may be less worried about this because of its own wholesale initiatives, although stablecoins can be used by a wider range of institutions. This is the one area where the sovereignty risk could be a little larger, but it doesn’t fit so well with promoting the need for digital euro legislation with its retail focus.
Mr Schaaf concluded, “If the Eurosystem and the European Union can build on this advantage – through robust regulation, infrastructure investment and digital currency innovation – the euro could emerge from this period of change as a stronger currency.”