Stablecoins have become one of the most consequential innovations in global finance, evolving from a niche liquidity tool for crypto traders into an instrument increasingly used for payments, remittances and cross-border settlements.
These digital blockchain-based tokens aim (or claim) to maintain a stable value relative to a reference asset, most commonly a fiat currency. The speed of their rise has been remarkable. In early 2019, the global market stood at around $400 million; within a year, it had multiplied to over $5 billion. Today, it exceeds $320 billion, accounting for a significant share of the crypto-asset industry. Projections that put the overall market in the trillions by the end of the decade now appear to be plausible. Stablecoins may not yet be systemically significant to the global financial system, but they could rapidly approach that threshold.
The stablecoin boom, moreover, has been overwhelmingly dollar-centric and looks likely to further entrench the US dollar’s role as the dominant global currency. US dollar-denominated stablecoins represent around 99% of the global market. What is emerging is not simply an innovative payment technology, but a powerful channel for the global diffusion of the dollar and, potentially, a new instrument of American monetary influence.
What does this mean for Europe? As a US-driven stablecoin ecosystem begins to reshape global finance, the European Union could soon face a test of monetary relevance. Will it merely be a bystander, or does it still have the capacity to act?
Digital dollarization
More than 80% of all dollar-backed stablecoins circulate outside the United States. Their real impact is global, not domestic. In many emerging economies, they offer an escape from chronic inflation, monetary mismanagement and fragile banking systems. In countries marked by severe instability or conflict, access to a reliable means of payment can be a matter of economic survival.
Technically, dollar-denominated stablecoins are not sovereign money; they are private claims on it. Yet for millions across Africa, Asia and Latin America — many of them among the world’s underbanked — these tokens already function as a de facto digital dollar, which is to say a practical means of transacting and storing value. What is emerging is a form of digital dollarization: bottom-up, decentralized and largely beyond the direct control of governments and central banks.
Momentum is also building at the core of the system. As major US payment networks such as Visa and Mastercard move to integrate stablecoins into their infrastructure, and retail giants like Amazon and Walmart explore their adoption, vast transaction volumes could soon bypass traditional banking rails — further accelerating the global spread of the blockchain-based digital dollar.
The quiet erosion of central bank power
Europe is not immune to deepening digital dollarization. Within the European Central Bank (ECB), concerns are growing that the widespread adoption of dollar stablecoins could, over time, expose the euro area to vulnerabilities typically faced by heavily dollarized emerging economies.
If dollar-backed private money becomes entrenched worldwide in payments, savings and everyday transactions, US monetary policy could further amplify its already considerable influence on liquidity, credit and spending dynamics within the eurozone. In effect, external monetary conditions would be imported into the eurozone, weakening the ECB’s grip on interest rates, money supply and inflation management. This could be problematic especially in times of stress, when policy control matters most. The ECB could be forced to rethink parts of its monetary policy toolkit.
‘In effect, external monetary conditions would be imported into the eurozone, weakening the ECB’s grip on interest rates, money supply and inflation management.’
A second concern is the possible disintermediation of banks. If households and firms massively shift deposits into dollar stablecoins, retail banks lose a stable and low-cost funding base. Lending becomes more expensive, credit provision weakens and the bank-based transmission of monetary policy is undermined. The result could be a reshaping of Europe’s banking system, one the ECB would have to manage and adapt to.
Of course, stablecoins and decentralized finance may eventually open alternative credit channels, and with them, significant opportunities for the European economy. But such a transition would bring new risks of its own, and yet another strategic challenge for the ECB.
Stablecoins and US debt financing
Stablecoins emerged as a market-driven innovation. But now a powerful state is backing them: the US administration is actively promoting their integration into mainstream finance. The GENIUS Act, signed into law by President Donald Trump on July 18, 2025, is a central pillar of a broader strategic framework in which the expansion of digital dollars is supposed to directly support US public financing.
Behind this audacious regulatory experiment lies a pressing fiscal reality. US public debt surpassed $38 trillion by early 2026 and is projected to reach $64 trillion within a decade. Following the post-pandemic inflation surge and rising interest rates, the cost of servicing that debt has escalated. In 2025 alone, net interest payments hit $970 billion, exceeding most major federal budget items. Meanwhile, Moody’s downgraded US sovereign debt from Aaa to Aa1. At the same time, amid trade tensions, traditional foreign sovereign bond buyers such as China, Japan, India and Brazil have begun reducing their exposure to US Treasuries, forcing the US to offer higher yields to attract capital.
By requiring full reserve backing in safe and liquid assets, chiefly short-term American Treasury bills, the GENIUS Act effectively drives the global growth of dollar stablecoins into sustained demand for American public debt.
A new transmission channel is emerging, one that closely ties private money creation and global payment and liquidity needs to US fiscal capacity and regulatory choices. An ECB working paper describes this geo-economically consequential mechanism as the “global safe asset channel.”
In the process, stablecoin issuers — private non-bank entities — become structural buyers of US government debt. The scale of the shift is already visible. Tether, the market leader, now holds around $122 billion in US T-bills, accounting for 83% of Tether’s reserves. That places the stablecoin issuer ahead of large sovereign holders such as Germany, Israel and South Korea. According to Bo Hines, CEO of Tether’s US business, the company aims to become one of the 10 biggest purchasers of US Treasuries this year.
Europe’s structural disadvantage
The emerging system not only contributes to lowering US borrowing costs. By drawing increasing amounts of global capital — including European — into dollar assets, it also risks putting upward pressure, at the margin, on European sovereign yields.
This matters because Europe enters this competition from a structurally weaker position. The eurozone lacks a universally accepted safe asset like the American T-bill, widely seen as the world’s preeminent risk-free asset. Repeated attempts to create a single safe asset for the eurozone have failed so far. Sovereign debt remains fragmented, with debt markets sharply differentiating between member states. Greek bonds simply do not carry the same safe-haven status as German Bunds, for instance, and this is not about to change.
This fragility is embedded in the very architecture of the Economic and Monetary Union (EMU). Designed without a full fiscal union, the system was meant to discipline the governments of member states through market pressure. In reality, it has produced a more precarious equilibrium, one in which rising yields — and especially widening spreads between bonds from different eurozone countries — can quickly spiral into self-fulfilling crises. That characteristic of the eurozone was painfully discovered during the sovereign debt turmoil of the last decade.
The ECB has so far contained these risks, stepping in to prevent bond markets from spiraling into panic that could push over-indebted governments toward default. This scenario is, in principle, possible within the EMU framework, but it has consequences that many fear would be severe for the entire eurozone.
‘What is emerging is not simply an innovative payment technology, but a powerful channel for the global diffusion of the dollar and, potentially, a new instrument of American monetary influence.’
Today, public debt levels across much of Europe are higher than ever. Fiscal trajectories continue to diverge. In order to strengthen the euro’s resilience in the face of the digital dollar competition, the European Union must hurry to overcome its long-standing reluctance toward deeper integration — whether through credible debt mutualization, completion of the still unfinished banking union or the long-promised “Capital Markets Union.” The time for declarations has passed; what the eurozone needs now is delivery.
Risks of regulatory arbitrage
Markets, for their part, are under no illusions. They continue to discriminate, and to reward safety (or rather perceived safety). In this context, US Treasury bills enjoy a decisive advantage. They combine short-term maturity, dollar-denominated stability and exceptional liquidity, making them particularly well suited to the reserve needs of stablecoin issuers. As stablecoin issuers and the US Treasury enter an increasingly interdependent and mutually reinforcing relationship, the relative appeal of European sovereign debt could weaken further.
Over the past year, regulatory divergence between the United States and the European Union has become markedly more pronounced. While the GENIUS Act broadly aligns in spirit with the EU’s Markets in Crypto-Assets (MiCA) framework — particularly on consumer protection and crypto compliance — it is significantly more permissive in practice.
This sets the stage for regulatory competition likely to favor the United States, as market participants gravitate toward the most favorable regimes. As Pablo Hernández de Cos, general manager of the Bank for International Settlements (BIS), has warned, “divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage.”
At the core of the current regulatory debate lies a more fundamental question: the “moneyness” of stablecoins, meaning the extent to which they genuinely function as money. In principle, fully backed, non-interest-bearing stablecoins do resemble digital cash. But once tokens incorporate features such as yield or redemption frictions, they begin to blur the line between money and financial securities.
According to de Cos, USDT (Tether) and USDC (Circle) exhibit characteristics closer to securities than to money. Redemption frictions, in particular, can lead to deviations from par in secondary markets. In that sense, they operate more like “exchange-traded funds” than like money and, consequently, they must fall under tougher disclosure and compliance rules, the BIS claims.
Tether rejected this assessment, calling the BIS chief’s remark “incorrect and ignorant.” This episode illustrates the widening regulatory gap between the United States and the EU, as both jurisdictions increasingly diverge in how to even define and classify stablecoins.
Options for the EU
A central bank digital currency
Even though EU policymakers’ institutional DNA remains deeply rooted in the defense of centralized, bank-based finance, they are aware that finance today is moving on-chain and that this shift cannot be resisted, only adapted to.
One way to retain control is through a central bank digital currency (CBDC). This is the path the ECB has chosen with the digital euro. Initiated in 2021, this complex and costly project could enter pilot phases by 2027 and see a broader rollout by 2029. Its ambition is twofold: to modernize the eurozone’s payment infrastructure, and to strengthen monetary sovereignty as global currency competition intensifies.
Yet its prospects are uncertain. As currently designed — capped, non-interest-bearing and largely domestic — it may struggle to compete with more flexible, globally integrated dollar stablecoins that have powerful built-in features such as instant settlement, programmability through smart contracts, seamless cross-border transfers and around-the-clock accessibility across digital platforms. By the time the ECB’s digital euro arrives, the market may already have moved on.
Across the Atlantic, the policy direction has turned decisively against CBDCs. The US Congress has advanced legislation that would rule out a sovereign digital dollar, citing concerns over financial privacy and state overreach.
Subsequent decisions reinforced this position, closing the door — at least for now — on a CBDC issued by the Federal Reserve. How to interpret Washington’s rejection of CBDC: Is it merely a domestic choice, or a strategic signal to others, the EU in particular? Framed as a defense of liberty, it casts CBDC in a suspicious light, implicitly branding it as “surveillance money.” For the digital euro, the risk is therefore not only technological lag, but a growing narrative disadvantage.
Euro-denominated stablecoins
EU policy circles are also increasingly considering more active and selective support for what ECB advisor Jürgen Schaaf calls “properly regulated” euro-denominated stablecoins. This is a sound strategic choice, but the issue remains complex.
So far, MiCA has kept the market small, bank-centric and tightly constrained. By the end of 2025, euro stablecoins remained marginal with a total market of around 395 million euros, dwarfed by their dollar-denominated counterparts.
Even more telling, the leading issuer of euro-denominated stablecoins is not European. EURC, the largest euro-backed stablecoin (with more than 50% market share as of early 2026) is issued by Circle, one of the two dominant US players in the global stablecoin market.
The EU is not expected to loosen its stringent regulatory stance, let alone link privately issued digital tokens to public debt. Replicating the GENIUS model would run counter to EU regulatory philosophy, which places monetary sovereignty and financial stability at its core. So far, there is little appetite in the EU for delegating — let alone outsourcing — core functions of monetary authority to private issuers. For eurozone regulators, fiat-backed stablecoins are not fiat money, they simply leverage trust in fiat currency.
‘The question is no longer whether stablecoins will matter, but whether Europe still matters in a world in which they do.’
On the financial stability front, the resilience of the current stablecoin model remains largely untested at scale. Episodes of stress — de-pegging events, runs, redemption frictions and liquidity shocks — are not hypothetical risks but structural vulnerabilities inherent to privately issued digital money.
The title of a 2023 BIS paper captures the concern: “Will the real stablecoin please stand up?” Its conclusion is equally blunt: all the stablecoins in circulation today fall short of the basic standards required of money, as they are neither reliably safe stores of value nor fully trustworthy means of payment for the real economy.
Even more consequential, instability in dollar-pegged stablecoin markets could spill over into the US Treasury market — and vice versa. That creates the risk of self-reinforcing debt–liquidity doom loops. Some observers already describe the system as a latent fault line embedded in the GENIUS strategy: a fragile architecture that works — until it doesn’t.
Could Europe’s heightened risk sensitivity ultimately prove comparatively advantageous? In the end, could regulatory prudence itself be reframed as a form of safe asset?
Global coordination
Another option is a continued push for global regulatory coordination on stablecoins. European regulators have been desperately calling for a common effort alongside counterparts elsewhere in the world to close precisely those regulatory gaps that can strain financial markets, weaken the fight against illicit finance and erode fiscal and monetary control.
Yet such coordination may prove elusive in an ever more fragmented geopolitical landscape. As relations with the US grow more transactional under the Trump administration, Washington appears less inclined to align — and more willing to exploit the eurozone’s structural weaknesses in order to extend the dollar’s dominance through the rapid global spread of digital platforms.
Each of these three options reflects a cautious, typically European response. Yet even taken together, they may not be enough to offset the scale and momentum of the US-led stablecoin expansion. This brings renewed urgency to the question of whether and how Europe’s defining strength — regulatory prudence — can, over time, translate into strategic influence rather than continue to act as a constraint on it. For Europe, the danger of America’s silent infrastructural coup lies less in a sudden loss of control than in the gradual erosion of monetary agency. The question is no longer whether stablecoins will matter, but whether Europe still matters in a world in which they do. The window to help shape the new financial order is still open, though it is narrowing fast.
