Central bankers in the European Union are raising concerns that US dollar-backed stablecoins could pose a threat to their ability to implement monetary policy effectively. The stablecoin market has experienced significant growth over the past year, partly due to legal clarity in the United States, with monthly market capitalization reaching new all-time highs. However, policymakers at the European Central Bank (ECB) are apprehensive about the implications of increased adoption of dollar-based assets, particularly during times of financial crisis.
Issuers of stablecoins backed by the euro and the pound acknowledge these risks but are skeptical that proposed solutions, such as a digital euro, can be implemented quickly enough to provide a viable alternative. They also question the suitability of a central bank digital currency (CBDC) for this purpose. Instead, these issuers believe that fostering a robust European stablecoin ecosystem is the most effective solution to counter dollarization in Europe.
ECB Warns of Monetary Policy Impact from Stablecoin Dollarization
In July 2025, Jürgen Schaaf, an advisor in the ECB’s market infrastructure and payments unit, cautioned that the growing adoption of US-dollar-based stablecoins in Europe could mirror patterns seen in dollarized economies, potentially weakening the central bank's control over monetary conditions. This risk is amplified, Schaaf noted, if users are drawn to perceived safety or yield advantages not available in euro-denominated instruments.
Concerns about systemic risk are also prominent. Olaf Sleijpen, governor of De Nederlandsche Bank, recently informed the Financial Times that the continued growth of US stablecoins could eventually make them systemically relevant. At that point, a potential run on these stablecoins would compel the ECB to re-evaluate its monetary policy to safeguard financial stability.
Dollar-based stablecoins currently dominate the market significantly, with 99% of the $300-billion stablecoin market backed by the dollar, according to Schaaf. Euro-denominated stablecoins represent a much smaller portion, amounting to only 350 million euros ($405 million). While some European initiatives exist and some banks are reportedly preparing to enter the market, their scale remains limited.
Gísli Kristjánsson, CEO of Monerium, a stablecoin issuer offering euro, dollar, British pound, and Icelandic króna-backed stablecoins, explained that the initial surge in stablecoin adoption was largely driven by the needs of cryptocurrency exchanges lacking traditional banking access. With the dollar firmly established as the primary quote asset for crypto traders, USD-denominated stablecoins naturally became dominant. Kristjánsson also pointed out that the dollar has historically been the preferred currency in regions with weaker local currencies, where individuals seek to hold a globally recognized strong currency.
However, Kristjánsson believes that euro-backed coins can bridge this gap. He stated that the primary obstacle to wider adoption of euro-backed stablecoins is the limited development of real-world use cases that appeal to mainstream users beyond cryptocurrency speculation.
“However, we anticipate a significant shift by 2026, with numerous compelling use cases expected to launch, driving substantial change in this landscape.”
He observed an increasing interest in using such stablecoins for payments and noted a trend of Europeans converting salaries received in dollar-backed stablecoins into assets more readily usable within Europe. Kristjánsson emphasized that if policymakers' primary concern is the diminishing role of the euro, then supporting the development of a strong euro stablecoin landscape is the most effective strategy to counter this trend and ensure the euro's continued relevance in the digital economy. Schaaf also highlighted that US dollar stablecoins could solidify their early dominance unless credible euro alternatives emerge.
A point of divergence between central bankers and the crypto industry lies in the preferred form of these alternatives: private stablecoins or a central bank digital currency (CBDC).
The Case Against CBDCs as the Sole Solution
Monetary policymakers are actively pursuing digital currency initiatives for the eurozone. Since the ECB published its initial report on a digital euro in 2020, the bank has been engaged in a gradual process of stakeholder consultation, infrastructure experimentation, and legislative preparation. The plan is projected to be presented to the European Council and the European Parliament in 2026. The ECB's stated objectives for the digital euro project include reducing the euro area's reliance on non-European providers, unifying the fragmented payments landscape, and fostering innovation and competition.
However, stablecoin issuers who spoke with Cointelegraph expressed reservations about the program's potential effectiveness. Andrew MacKenzie, founder of UK-based stablecoin issuer Agant, commented that most CBDC proposals to date have demonstrated limited functionality and have been poorly designed, lacking an understanding of the distribution and usability characteristics necessary for successful adoption. He questioned whether central bank-issued digital money could offer the accessibility, functionality, and global transferability of major global stablecoins or adequately meet the demands of real-world use cases and markets. MacKenzie raised concerns about whether CBDCs might become entangled in bureaucracy, risk management issues, political debates, and procurement scandals.
Kristjánsson believes that the projected 2029 launch date for the digital euro may be too late to effectively address the current dynamics of stablecoin adoption. Significant uncertainties remain, including whether the digital euro will operate on a blockchain or a proprietary system. Furthermore, proposed caps on holdings could undermine many of the inherent benefits offered by private stablecoins, such as scalability and decentralized access.
Kristjánsson also views the digital euro as a competing product that diverts attention from the developing European stablecoin ecosystem, which could effectively address central bankers' concerns about dollar dominance. He suggested that the ECB's approach is not conducive to this goal.
This does not preclude collaboration between central banks and stablecoin issuers. MacKenzie noted that stablecoins are closely linked to the fiat banking system, with issuers holding traditional backing assets, including commercial bank deposits. He also referenced the Bank of England's recent proposal to offer liquidity to stablecoin issuers.
“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.”
Ultimately, whether the future of digital money in Europe takes the form of private stablecoins or a closely regulated digital euro, the sovereignty of Europe's monetary policy hinges on the development of these digital assets.