Central bankers in the European Union are making the case that US dollar-backed stablecoins could be a threat to their ability to make monetary policy.
The stablecoin market has boomed over the past year, largely driven by legal certainty in the US. Each month marks a new all-time high for stablecoin market capitalization. But policymakers at the European Central Bank (ECB) are concerned about what this increased adoption of dollar-based assets could mean during a time of crisis.
Issuers of stablecoins backed by the euro and the pound recognize those risks as well, but they don’t believe that proposed solutions, like a digital euro, can provide an alternative fast enough. They also question whether a central bank digital currency is the right fit.
Instead, issuers believe the solution to dollarization in Europe is a thriving European stablecoin ecosystem.
ECB says stablecoin dollarization will affect monetary policy
In July 2025, Jürgen Schaaf, an adviser in the ECB’s market infrastructure and payments unit, warned that increasing adoption of US-dollar-based stablecoins in Europe could “echo patterns observed in dollarised economies.” Namely, the central bank’s “control over monetary conditions could be weakened.”
This is particularly true, says Schaaf, if “users seek perceived safety or yield advantages that are not available in euro-denominated instruments.”
Concerns for systemic risk also abound. On Monday, De Nederlandsche Bank governor Olaf Sleijpen told the Financial Times that, if US stablecoins continue to grow as they are, “they will become systemically relevant at a certain point.” Once that level is reached, a run on stablecoins, were it to happen, would force the ECB to “rethink monetary policy” to ensure financial stability.
Related: Stablecoin panic could upend ECB policy, Dutch central bank governor warns
Dollar-based stablecoins are significantly ahead of their euro-based counterparts. According to Schaafer, 99% of the $300-billion stablecoin market is dollar-backed coins. Euro-denominated stablecoins amount to only 350 million euros ($405 million).
“A few initiatives exist, and some European banks are reportedly preparing entries into the market. However, the scale so far is limited,” said Shaafer.
Gísli Kristjánsson, CEO of stablecoin issuer Monerium, which offers stablecoins backed by euros, dollars, British pounds and the Icelandic króna, told Cointelegraph, “The initial surge in stablecoin adoption was primarily driven by the needs of cryptocurrency exchanges lacking traditional banking access.”
With the dollar cemented as the “primary quote asset for crypto traders,” this “naturally led to the dominance of USD-denominated stablecoins.”
Kristjánsson also noted that the dollar has historically been preferred in areas with weak local currencies, where savers and investors are looking to hold a “globally recognized strong currency.”
But euro-backed coins can close this gap, he said. “The primary impediment to wider adoption of euro-backed stablecoins lies in the limited development of real-world use cases that resonate with mainstream users beyond cryptocurrency speculation.”
Kristjánsson continued:
“However, we anticipate a significant shift by 2026, with numerous compelling use cases expected to launch, driving substantial change in this landscape.”
He noted an uptick in interest in using such stablecoins for payments, as well as Europeans converting salaries received in dollar-backed stablecoins into an asset that can be more widely used in Europe.
But if policymakers’ main concern is the diminishing role of the euro, then “supporting the development of a robust euro stablecoin landscape is the most effective strategy to counteract this trend and ensure the continued relevance of the euro in the digital economy.”
Schaaf also noted that “US dollar stablecoins may cement their early dominance unless credible euro alternatives materialise.”
One of the points of contention between central bankers and the crypto space is what form this alternative should take: private stablecoins or a central bank digital currency (CBDC).
Why not CBDCs?
Monetary policymakers are already working on digital money for the eurozone. Since 2020, when the ECB first published its report on a digital euro, the bank has begun the slow process of seeking input from stakeholders, conducting experiments on infrastructure and preparing the legislative groundwork for 2026, when the plan is projected to be presented to the European Council and the European Parliament.
The project’s stated goal, according to the ECB, is to “reduce the euro area’s reliance on non-European providers, help unify the fragmented payments landscape, and support innovation and competition.”
Related: Digital euro CBDC is ‘symbol of trust in our common destiny’ — ECB head
The stablecoin issuers that spoke to Cointelegraph were not so certain about the program’s efficacy. Andrew MacKenzie, founder of UK-based stablecoin issuer Agant, said that most CBDC proposals so far “demonstrated limited functionality and have been poorly constructed, with a lack of understanding of the distribution and usability characteristics for successful adoption.”
He doubted that central bank-issued digital money could provide the “accessibility, functionality and global transferability” of major global stablecoins or “fulfil the needs and demands of real-world use cases and markets.” MacKenzie asked rhetorically whether stablecoins wouldn’t get caught up in “bureaucracy, risk management, political debates, and procurement scandals.”
For Kristjánsson, the projected 2029 launch date of the digital euro may be “too late to effectively address the current dynamics of stablecoin adoption.”
Uncertainties still abound. It’s not clear whether the digital euro will work on a blockchain or some other proprietary system. Suggested caps on holdings would “negate many of the inherent benefits offered by private stablecoins, such as scalability and decentralized access.”
Further, Kristjánsson believes that the digital euro is a “competing product” to stablecoins, which diverts attention from the burgeoning European stablecoin ecosystem, which could effectively address central bankers’ concerns about the dollar. “The ECB is not being helpful in that respect.”
This all doesn’t mean that central banks and stablecoin issuers can’t work in concert. MacKenzie said that stablecoins are “very much tied” to the fiat banking system, with issuers holding traditional backing assets, including commercial bank deposits. He also noted the Bank of England’s recent proposal to provide stablecoin issuers with liquidity.
“We see central banks continuing to have a key role to play in payments and financial markets infrastructure, as they do today. For stablecoins, this may take new forms.”
Whether it takes the form of a private stablecoin or a digital euro, closely overseen by the ECB, the sovereignty of Europe’s monetary policy depends on the development of digital money.
Magazine: Ethereum’s Fusaka fork explained for dummies: What the hell is PeerDAS?
