Widespread use of U.S. dollar-denominated stablecoins in the European Union (EU) for payments or settlement could damage the European Central Bank’s control over monetary conditions, an ECB adviser said.
If U.S.-backed stablecoins, digital assets that are backed by the dollar, gain traction for use in the EU, the effect could be similar to the impact of the U.S. dollar on developing economies, Jürgen Schaaf said in a blog post on Monday. In particular, they have made it harder for policymakers to set interest rates and control money supply.
“This encroachment, though gradual, could echo patterns observed in dollarised economies, especially if users seek perceived safety or yield advantages that are not available in euro-denominated instruments,” Schaaf said.
The biggest stablecoins are Tether’s USDT and Circle’s USDC, which together make up more than 80% of the total stablecoin market cap, which climbed to $271.8 billion following the signing into law of a U.S. stablecoin act on July 19.
Schaaf described the U.S. law as similar to the EU’s Markets in Crypto Assets (MiCA) regulation, but more lenient in some areas. The implementation of the act could result in the stablecoin market growing to $2 trillion by the end of 2028, investment bank Standard Chartered said in April.
“U.S. dollar stablecoins may cement their early dominance unless credible euro alternatives materialise,” Schaaf wrote. Such dominance “would provide the United States with strategic and economic advantages, allowing it to finance its debt more cheaply while exerting global influence.”
In cross-border transactions, dollar-denominated stablecoins could compete directly with euro-based instruments, Schaaf said. They could also be heavily relied on for tokenized settlements as that process requires a digital representation of cash to settle transactions, he added.
To mitigate against the threat, Schaaf suggested that more support should be offered for euro-backed stablecoins. He also suggested the digital euro — a digital currency that would be issued by the ECB — would have a role to play.
“The digital euro promises to be a robust line of defence of European monetary sovereignty,” Schaaf said.
The ECB is not the only regulator concerned about the dominance of stablecoins that are pegged to the greenback. China is also considering the need for a regulated offshore yuan (CNH) stablecoin, Animoca Group President Evan Ayuang said in an interview with CoinDesk last week.