Jürgen Schaaf, an economist and advisor to the European Central Bank’s Market Infrastructure and Payments division, emphasizes the need for increased support for well-regulated euro-denominated stablecoins to counter the influence of US dollar-backed tokens.
Currently, US dollar-based stablecoins represent around 99% of the total stablecoin market capitalization, while euro-denominated stablecoins are significantly smaller, with a market cap of less than €350 million. These stablecoins are appealing as a blockchain-based equivalent of money, being liquid, globally transferable, and regarded as a stable store of value.
As stablecoins grow in scale and complexity, they pose challenges for financial stability, monetary sovereignty, the smooth operation of payment systems, and international policy coordination. Despite their limited scale compared to conventional financial assets, stablecoins are becoming more intertwined with traditional financial institutions, raising potential risks to financial stability.
Schaaf warns, “A disorderly collapse could reverberate across the financial system, and the risk of contagion is a growing concern for central banks.” The Bank for International Settlements (BIS), in its Annual Economic Report 2025, noted significant risks associated with stablecoins, including potential threats to monetary sovereignty and transparency issues. The BIS highlighted notable deviations from the expected value of some stablecoins, underscoring their inherent fragility.
The rise of interest-bearing stablecoins presents additional challenges. If adopted more widely, they could divert deposits from traditional banks, jeopardizing financial intermediation and credit availability—especially concerning in Europe, where banks are crucial to the financial system.
Schaaf warns that if US dollar stablecoins gain traction in the euro area for payments, savings, or settlements, the European Central Bank’s control over monetary conditions could weaken. He notes that this gradual encroachment could mirror trends in dollarized economies, as users may seek perceived safety or yield advantages not available in euro-denominated instruments. The larger the presence of US dollar stablecoins, the more difficult it may be to reverse their influence.
The US Administration has made it clear that its support for stablecoins aims to bolster the US dollar’s global dominance and reduce borrowing costs by increasing demand for US Treasuries through stablecoin reserves.
To navigate these challenges, Schaaf suggests that European policymakers must adapt and embrace potential disruptions. He asserts that euro-denominated stablecoins, if designed with high standards and effective risk mitigation, could address market needs and enhance the international role of the euro.
With Europe’s strong institutional framework and rules-based approach, there is a solid foundation for managing associated risks. “If the Eurosystem and the European Union build on this advantage through robust regulation, infrastructure investment, and digital currency innovation, the euro could emerge from this period of change even stronger,” he concludes. “In a world of shifting sands, the euro has the potential to be the bedrock on which others can build.”