Are Dollar Stablecoins Eroding the Euro’s Territory? The European Central Bank Warns of Financial Sovereignty Crisis

Jürgen Schaaf, a senior advisor in the European Central Bank’s (ECB) Market Infrastructure and Payments division, recently issued a warning that the growing prevalence of dollar-pegged stablecoins is threatening the ECB’s control over monetary policy.

Schaaf pointed out that the rapid adoption of stablecoins could place the eurozone in a situation similar to that of emerging economies experiencing ‘dollarization’: in these countries, widespread use of the US dollar can undermine the ability of domestic policymakers to set interest rates or manage the money supply.

As one of the core assets in cryptocurrency trading, the global circulation of stablecoins has climbed to approximately $250 billion, with the vast majority pegged to the US dollar. This trend is accelerating as efforts to integrate stablecoins into the mainstream financial system gain momentum under the Trump administration.

In an article published on the ECB’s official blog on Monday, Schaaf wrote:

“If dollar-pegged stablecoins are widely used for payments, savings, or settlements in the euro area, the ECB’s control over monetary conditions could be weakened,”

He also noted that an ‘unorderly collapse’ of private sector stablecoins could trigger a ‘chain reaction throughout the financial system,’ which is becoming an increasing source of systemic risk for central banks.

Currently, Tether and Circle operate the two largest stablecoins globally. The landmark stablecoin regulation bill passed in the US this month is expected to pave the way for Wall Street banks to launch their own stablecoin products.

Stablecoins, backed one-to-one by safe assets such as government bonds, aim to serve as a bridge between crypto assets and the traditional financial system. Proponents argue that they are more efficient than traditional international bank transfers, but their anonymity also makes them a common tool for drug trafficking and money laundering.

The recent warning from the European Central Bank (ECB) is the latest manifestation of global central banks’ concerns over the growth of stablecoins. The Bank for International Settlements (BIS) pointed out last month that stablecoins perform poorly as money due to several factors, including their lack of support from central banks, insufficient safeguards against illegal uses, and the absence of a flexible financing mechanism necessary for credit creation.

Furthermore, if stablecoins were to pay interest to depositors in the future, it could lead to an outflow of deposits from traditional banks, thereby weakening their ability to provide credit to the real economy.

“The risks are clear, and we must not downplay them,” Schäf wrote, adding that the ECB’s digital euro project is an important line of defense for safeguarding European monetary sovereignty.

Schäf also noted that Trump’s supportive policies towards stablecoins would further consolidate the US dollar’s dominance globally and potentially lower borrowing costs for the United States.

“For Europe, this would mean higher financing costs, less autonomy in monetary policy, and greater geopolitical dependency compared to the US.”