‘Should there be a Euro Stablecoin?’… EU Regulators Considering Countermeasures for Dollar Stablecoins

European authorities are strongly warning that dependence on dollar-based stablecoins could weaken the euro's sovereignty and disrupt the financial system. As the popularity of stablecoins surges across the region, pressure is mounting to promote digital assets denominated in euros.

Currently, most stablecoin activity in Europe remains dollar-based. This trend is raising concerns among central banks, regulatory agencies, and major lending institutions. As the European Union introduces new cryptocurrency regulations, debates about private and public digital currency options are intensifying.

Dollar Stablecoins, European Concerns

Recent data shows that stablecoin adoption in Europe is rapidly increasing, but American assets remain dominant. For example, the region's stablecoin activity increased from 16% to 34% after 2024, but almost 99.8% of stablecoins are dollar-based. The scale of this dependence is emerging as a critical issue for policy leaders.

This reality is raising policy concerns. If digital dollars become mainstream in European commerce and savings, the European Central Bank's ability to adjust monetary policy and the euro's status could be weakened. The ECB warned that massive dollar stablecoin adoption "could undermine the euro's sovereignty and financial stability".

EU research shows that dependence on dollar-based stablecoins could accelerate digital dollarization and further weaken sovereignty and central bank influence. Leaders from institutions like Societe Generale continue to raise concerns about the dominance of the US payment system within Europe.

A report from the European Parliament explains that the growth of dollar-based stablecoins could diminish the ECB's action effectiveness and increase exposure to external shocks. These risks led the EU to adopt a new regulatory framework, including comprehensive Markets in Crypto-Assets (MiCA) regulations for stablecoin issuers.

"As concerns about US stablecoins grow, the ECB has once again emphasized the need for a digital euro." – Economic Governance and EMU Monitoring Unit (EGOV) statement.

MiCA Regulation, Shaping Stablecoin Future

To address these challenges, the MiCA framework establishes strict rules for stablecoin issuers, including reserve requirements, transparency, and capital standards. The primary goal is to support digital innovation while maintaining firm control over monetary policy and limiting economic risks.

According to an influential expert commentary, "Promoting innovation must be carefully combined with preserving financial stability and trust." Therefore, the EU is not banning dollar stablecoins but encouraging euro-based digital assets that better align with economic goals.

Some startups worry that regulatory barriers might suppress new projects. However, MiCA is widely recognized as a foundation providing clear and harmonized rules for investors and developers across all member states. These safeguards are intended to limit systemic risks occurring in less regulated markets.

Despite MiCA's importance, practical progress depends on robust and consistent enforcement. The effectiveness of these rules relies on regulatory agencies applying them fairly and consistently across Europe.

Balancing Private Solutions and Digital Euro

The stablecoin debate raises broader questions: Should private euro-based stablecoins take the lead, or should the European Central Bank launch its own digital euro?

Many policymakers view a digital euro as a way to protect monetary sovereignty and strengthen the single currency's international role. Detailed analysis argues that a digital euro could counter the dollar and enhance Europe's digital competitiveness.

Nevertheless, some argue that central bank digital currencies might not offer significant advantages compared to efficient private payment and stablecoin solutions. A policy report "Digital Euro: Catching Up and Browsing Daisy" warns that the current logic is weak and risks duplicating private sector options.

Divisions persist within the policy realm. Maintaining public trust, avoiding dangerous market concentration, and promoting local innovation remain central to ongoing debates. A recent ECB hearing provides additional insights into how central banks are assessing digital finance risks and opportunities.

As stablecoin usage accelerates in Europe, policymakers face critical choices. They must act swiftly to defend monetary sovereignty, apply EU-wide regulations, and foster innovations that strengthen the euro. While MiCA has set the regulatory framework, ongoing debates between public and private digital options will shape the future.

The region's next steps in responding to digital finance growth and global dollar dominance remain crucial.