Say you have the option to pay for your next Amazon order or book a flight with Luxair using euro-stablecoins, accepted and processed by Mastercard and Visa–the very debit and credit cards already in your wallet–or even buy a cappuccino in Hamilius, just by swiping your phone. Normally, these cards either debit directly from your bank accounts or settle at the end of the month for credit cards. But why, then, would you bother with euro-denominated stablecoins?

Stable value and trust

Here’s why. Euro-stablecoins–tokens pegged 1:1 to the euro–offer stable value for your spending, just like the same amount in cash. Issuers, registered with national competent authorities such as the Luxembourg Financial Sector Supervisory Commission (CSSF) and regulated under the EU’s markets in crypto-assets (Mica) framework, would highlight regulatory compliance and broad acceptance throughout the euro area. Crucially, each token would have to be fully backed–meaning an exact equivalent in euros held in reserve at all times, ready to redeem token-holders on request.

But the name on the token matters. It has to be a “big-name,” well-capitalised, trustworthy issuer. After all, unlike a local bank account, there is no to protect token-holders if an issuer goes bankrupt or mismanages funds.

You might ask: if the tokens are fully backed, why would an issuer ever go bankrupt? Because these issuers are not just issuing tokens for the sake of it–they are in it to make money. Billions of euros in custody do not just sit idle. Issuers would invest in high-quality assets–AAA-rated US treasuries, euro sovereign bonds, or European Central bank and European Investment Bank bonds–to ensure low risk and satisfy regulators.

The income allure

Now comes the real topping: the issuer could share a portion of that bond yield as ‘interest’ or ‘passive income’ with token-holders. Why not? This makes stablecoins more appealing than simply holding euros in your wallet, which retain their value but earn nothing. It is a compelling incentive for retail customers and small businesses to keep cash in stablecoin form while generating some return.

But keep in mind, stablecoins are and will always carry some risk, however small.

The dilemma

Now imagine many households and small businesses fall for this “added income.” Deposits would flow from current and savings accounts into stablecoins, chasing yield and beating inflation. Banks lose cash, struggle to issue loans and mortgages, and suddenly face a liquidity crunch. As a result, credit availability tightens, and financial instability becomes a tangible risk.

This is where the European Central Bank–and other central banks–see a role. Enter central bank digital currencies (CBDCs). For the euro area, the –a legal tender guaranteed by the ECB–offers the same digital convenience, instant settlements and even offline payments, with zero default risk.

But, like cash, it would not pay interest, and holding limits could prevent mass deposit outflows. In this way, it remains a payment instrument rather than an investment, protecting financial stability and the transmission of monetary policy.

What next?

Fast-forward to the future: euro-stablecoins and the digital euro exist side by side. Citizens and businesses decide what suits them, how much risk they are willing to take, and how they want to hold and spend their euros. Perhaps they coexist peacefully, perhaps one dominates, or maybe the world becomes a soup of digital currencies, with faster settlements, universal acceptance and safety as the ultimate winners.

For the ECB and other financial regulators, including the European Securities and Markets Authority (Esma), the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority (Eiopa), the real safeguard against interest-bearing euro-stablecoins posing financial risks is a strong and effective Mica–the EU framework that governs the issuance, trading and supervision of crypto-assets, including stablecoins, while ensuring robust consumer and investor protection across member states, preserving market integrity and reinforcing confidence in Europe’s evolving digital currency ecosystem.