EU Aims for Euro Stablecoins to Challenge Dollar's Dominance

The European Union is actively pursuing strategies to diminish the U.S. dollar's stronghold in the digital currency landscape. These strategies include the development of a digital euro and the promotion of euro-denominated stablecoins. These initiatives reflect concerns about the potential vulnerabilities arising from over-reliance on dollar-backed assets and aim to bolster Europe's financial sovereignty.

The rise of stablecoins, cryptocurrencies designed to maintain a stable value relative to a specific asset or pool of assets, has been significant in recent years. While many are used for trading cryptocurrencies, their influence extends to cross-border payments, liquidity, and overall market stability. However, the dominance of U.S. dollar-backed stablecoins, such as Tether and Circle's USDC, has prompted European policymakers to seek alternatives.

Several initiatives are underway to counter the dominance of the digital dollar:

Digital Euro: The European Central Bank (ECB) is progressing with its plans for a central bank digital currency (CBDC), the digital euro. The digital euro aims to offer a secure and private electronic means of payment accessible to everyone in the Eurozone. It would complement banknotes and coins, giving people an additional choice about how to pay. The ECB has selected providers for various digital euro components and services, and is currently in the preparation phase, with a decision on whether to launch it expected by the end of October. The digital euro could launch as early as 2029.

Euro-Denominated Stablecoins: A consortium of nine European banks, including ING and UniCredit, are forming a new company to launch a euro-denominated stablecoin. This initiative aims to provide a European alternative to the U.S.-dominated stablecoin market and contribute to Europe's strategic autonomy in payments. The new Amsterdam-based company is expected to launch its stablecoin in the second half of next year. Societe Generale's crypto arm, SG-FORGE, launched a euro-based stablecoin in 2023, though adoption has been limited.

Regulatory Framework: The EU has implemented the Markets in Crypto-Assets (MiCA) regulation to create a harmonized legal framework for crypto-assets. MiCA aims to protect investors, preserve financial stability, and foster innovation in the crypto-asset sector. The regulation includes specific rules for stablecoins, requiring them to be backed by a liquid reserve with a 1:1 ratio. Algorithmic stablecoins, which do not have explicit reserves tied to traditional assets, are effectively banned under MiCA. The European Banking Authority (EBA) will supervise stablecoins, with a requirement for issuers to have a presence in the EU.

The EU is also considering measures to address the risks associated with "multi-issuance" stablecoins, where tokens are issued jointly within the EU and other jurisdictions. The ECB and the European Systemic Risk Board (ESRB) have expressed concerns that such arrangements could destabilize the bloc during market stress.

These initiatives are driven by several factors:

• Enhancing payment efficiency and transparency.
• Preserving financial sovereignty in the face of U.S. digital dominance.
• Reducing dependence on U.S.-centric payment networks like Visa and Mastercard.
• Competing with China's digital yuan and maintaining the euro's global influence.
• Preparing the region for a cashless, digital-first economy while safeguarding market stability.

The European Parliament is expected to outline its position on these issues by May 2026. The outcome will determine the future landscape for stablecoin adoption in the EU and whether issuers like Circle and Paxos must localize operations or risk exclusion from the EU market.