Barbarians at the Gate: US Stablecoins Challenge the Digital Euro
The digital euro and MiCA regulations are key parts of the EU's defense
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The EU’s monetary sovereignty is under attack by US dollar stablecoins. While the EU’s regulatory walls and digital euro may offer protection for now, in the long term, the EU must address the barbarians at the gate.
Let’s be clear from the start, the EU would be much happier if the US issued a central bank digital currency (CBDC) rather than a stablecoin. Instead, the EU is facing an attack by privately issued US dollar-denominated stablecoins that cozy relationships between central bankers cannot control.
The EU views stablecoins as a form of “cryptomercantalism,” a policy that promotes the issuance of privately issued, USD-pegged stablecoins to reinforce the dominance of the dollar.
The EU isn’t wrong. If you listen to the rhetoric from Washington, stablecoins are a new tool for indiscriminately promoting dollar use globally. While the GENIUS Act imposes US KYC/AML restrictions, stablecoins’ enforcement of these standards is lax, and it is hard to believe they will be strictly enforced given the stated desire for expanded dollar use.
The process is indiscriminate because, according to Washington and the crypto bros promoting stablecoins, anyone, anywhere should be able to use a US dollar stablecoin, local taxes, currency restrictions, and monetary sovereignty be damned.
Ethos Matters
This relentless pursuit of dollar expansion isn’t just rhetoric; it is hard-baked into the underlying technology behind the EU and the US’s digitized currencies, which reflect their starkly contrasting ethoses.
The digital euro is a central bank digital currency (CBDC), public money backed by the European Central Bank, which provides the ultimate guarantee of the currency’s value. CBDCs are a public good available to all with goals that are similarly civic-minded in promoting inclusion, maintaining monetary sovereignty, and ensuring stability.
Stablecoins issued by private companies are barbarians by comparison. Their primary goal is to profit the issuer, and these profits are maximized by attracting more users, extending US dollar hegemony. Stablecoins create an entire new ecosystem of companies actively promoting dollar use.
While this may suit Washington’s goal of ensuring dollar hegemony, many of these companies willfully ignore the risk that dollarization ignores monetary sovereignty and may destabilize developing nations.
Stablecoins bring real advantages to dollar transfers, which should not be diminished, but they are also creating a new cartel of US-based payment giants in the process, as though Visa and Mastercard were not enough.
The EU’s Barriers
The EU claims that it can repel the USD stablecoin invasion due to high institutional and regulatory barriers. This is likely true, but the US is doing no favor to the EU by making them check that these systems are in place.
Institutional barriers include a well-developed euro system with banks, payment systems, and 83% of Europeans with a positive view on the euro. Stablecoins would have a tough job convincing Europeans to switch to a foreign-denominated coin they can’t use for local payments, especially without a central bank backing.
Regulatory barriers are also high, and the recently adopted MiCA rules governing stablecoins impose strict requirements on foreign stablecoins, particularly those deemed large. These rules were enough to scare away Tether and would likely deter any US stablecoin from climbing the walls for now.
The Digital Euro
The EU’s other defense against US stablecoins is the digital euro, which will not be easily toppled. Europeans pay in euros and need a euro-denominated digital payment vehicle to bring payments into a new era.
The digital euro also has defenses that US stablecoins can’t match. The digital euro will be an official currency with universal acceptance within the EU. This makes displacing it with a privately issued, dollar-denominated, stablecoin particularly difficult.
Universal acceptance is a local advantage for the digital euro that US stablecoins can’t match, even in the US. While the GENIUS Act allows stablecoins, there is no regulation mandating their acceptance as they are not national currencies.
The digital euro and US stablecoins will eventually work well together once systems are designed to facilitate smooth transfers between the two and manage the risk of stablecoins changing value. These systems will also help manage the stablecoin assault by forcing them onto official channels.
The digital euro, as designed today, isn’t perfect in its defensive capabilities. Low holding limits, as well as the lack of a final design that demonstrates user privacy, remain unresolved issues.
Ironically, the stablecoin assault is helping the digital euro by bringing a new sense of urgency to the digital euro design team and new support from legislators for a more aggressive digital euro design.
The EU’s New Push for Monetary Sovereignty
Make no mistake, the EU is not pleased that the US chose stablecoins as its means for digitizing the dollar and would have much preferred another CBDC, like the digital euro or perhaps bank-issued deposit coins.
The thought of crypto stablecoins, which are so widely associated with crime, corruption, and instability, being the representation of the world’s premier national currency is distasteful to the EU, the ECB, and the closely related Bank for International Settlements (BIS). The BIS went as far as to declare that stablecoins “cannot be the mainstay of the future monetary system.”
In its analysis, the EU is confident that regulatory and institutional barriers will prevent any widespread adoption of USD stablecoins in the EU that will impact monetary policy or monetary sovereignty.
That’s all well and good, but the US is introducing stablecoins into the market with the expressed intention of attracting dollar users away from other currencies should only make the EU and other nations protect their monetary sovereignty more fiercely long term.
To do this, the EU must raise its wall to protect itself against the invading US stablecoins. To achieve this, it should:
Strengthen the MiCA laws governing foreign stablecoins and exchanges to put further limits on the use of foreign coins and ensure no loopholes remain.
Not seek the reciprocity offered between US and EU-issued stablecoins available under the GENIUS Act. Reciprocity opens the door for US stablecoins in the EU and mandates US-compliant KYC/AML on any EU-issued stablecoins.
Launch a less restricted version of the digital euro without delay.
Promote the digital euro as a safer and better-integrated means of payment within the EU and for cross-border transactions.
These four actions will raise the wall to ensure that the EU maintains monetary sovereignty and thwarts US ambitions for an even greater role for the US dollar at the euro’s expense.
Long-term US stablecoins and the digital euro will allow for faster and cheaper transfers between the two jurisdictions, a fundamentally good thing for all citizens, but not without the EU building its walls a bit higher.
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