With euro stablecoins and a digital euro, Europe wants to counter the looming dollarization of the European economy. In consumer payments, the sovereignty of the euro is already under pressure, the European Central Bank warns.
Payment systems are critical infrastructure, just like transport, telecommunications, and energy networks. If the dominance of the US dollar in digital markets continues to expand, Europe could eventually lose the ability to conduct its own monetary policy.
That scenario has been described repeatedly in recent months in political, monetary, and academic publications, such as analyses by the Brussels think tank Bruegel and its Italian counterpart Istituto Affari Internazionali (IAI). Last week, an ECB Working Paper on the adoption of stablecoins was added to this body of work. Stablecoins are tokens that use DLT (distributed ledger technology, previously referred to as blockchain) to enable financial transactions to be processed much faster and more efficiently.
The market capitalization of stablecoins grew in 2025 from 205 billion dollar to 308 billion dollar. Large companies and traders see the advantages: in exchange for a dollar, the provider gives you a token, and with those tokens you can settle transactions with other token holders in milliseconds within the distributed ledger, a computer network. At any moment, a token can be exchanged back into dollar. The value of a stablecoin is “pegged” to an existing currency.
Second-tier currency
There are now dozens of stablecoins on the market and in almost all cases they are dollar-denominated tokens. That is precisely the problem, according to the authors of the ECB Working Paper. If a European party chooses to use stablecoins, those transactions will therefore usually be conducted in dollar rather than euro. If that happens on a large scale, the European economy becomes “dollarized”. The euro would then become a second-tier currency in Europe. The result is that the economy becomes more dependent on US monetary decisions, while the effect of European monetary policy would weaken, affecting Europe’s sovereignty.
Professors Andrew Whitworth and Nicola Bilotta, who analyzed these developments for the Italian IAI, point out that the US is deliberately seeking to expand the dominance of the dollar. The Genius Act, adopted last July, which further regulates the issuance of stablecoins, creates the conditions for this. The Genius Act, for example, makes it possible for large technology platforms (Google, Apple) to integrate a dollar stablecoin into their ecosystem, much as Facebook attempted a few years ago with Libra, and distribute it globally.
Visa, Mastercard
The Markets in Crypto-Assets Regulation (MiCAR, from 2024), the European counterpart to the Genius Act, allows a limited number of transactions in “foreign stablecoins” within the EU. According to the ECB in particular, however, this does not eliminate the risks of dollarization. The European Commission and the ECB have therefore been working for some time on a strategy to protect the sovereignty of the euro. This includes supporting the creation and growth of euro stablecoins (see box). They are also working on improvements that should make Target, the existing European payment system for large-value transactions, faster and more efficient. With the Pontes project, the ECB wants to build a bridge between DLT platforms and Target.
The European strategy also extends to everyday payments, because European sovereignty is already under pressure in that market, as ECB Executive Board member Piero Cipollone has emphasized in recent speeches. Stablecoins do not yet play a significant role in retail payments, but digital systems are becoming increasingly important in that market because cash is playing a steadily smaller role. Digital payment systems, however, are largely controlled by American companies. According to the ECB, nearly two-thirds of card-based transactions in the euro area are processed by Visa, Mastercard, or PayPal, which is considered undesirable.
For that reason, among others, the ECB strongly supports the integration of national payment systems into a pan-European payment network, Cipollone says. An important step was taken in February with the signing of an agreement between the European Payments Initiative (EPI, created by sixteen major banks), which is developing the system around the digital wallet Wero, and the EuroPA Alliance, the partnership of national payment apps (such as iDeal). European Business Magazine wrote about the agreement: “Europe’s 24 trillion dollar breakup with Visa and Mastercard has begun”.
Defense line
The declining role of cash is also one of the strongest drivers behind the ECB’s continued work on the introduction of the digital euro. Sovereignty is also an argument in this context. If cash were to disappear completely, the central bank would lose its direct connection with the “ordinary citizen”, and that citizen would be entirely dependent on “market currency”. Money in bank accounts is privately created money, after all. Only the reserves that banks hold at the ECB and physical cash are issued by the central bank and therefore guaranteed by it.
Whether the digital euro, a so-called Central Bank Digital Currency (CBDC), will actually be introduced depends on several political steps that still need to be taken. The first issuance would come no earlier than 2029. A majority in European politics is broadly supportive of a CBDC, unlike in the US. President Trump has banned a digital dollar issued by central banks. He wants to give free rein to private initiatives in the monetary sphere.
According to the ECB, the digital euro is one of the most important elements of the defense line that must be built to prevent the looming dollarization of the European economy. Regulation such as MiCAR is therefore the second component. The third pillar focuses on the private sector: European institutions say they strongly support the development and growth of private digital euro payment solutions, such as stablecoins. These euro payment solutions must compete with the existing dollar initiatives.
Whitworth and Bilotta (IAI) argue that this is “a coherent strategy”, but they also note that it is a “reactive and protective” strategy. At one time, Europe aimed to be a first mover in digital payments, but that perspective has disappeared. Europe is now on the defensive.
Dollar and euro stablecoins
In global trade, the dollar has a market share of 60 percent, the euro about 20 percent. In stablecoins, that distribution is 99 percent versus barely 1 percent. According to defillama.com, the total market now amounts to 311 billion dollar. USDT from Tether accounts for 59 percent of that (184 billion dollar), while USDC from Circle is number 2 with 77 billion dollar. Last year Circle also launched a euro-backed stablecoin, EURC. There are now 393 million euro of these in circulation.
The business model of these companies is simple: the customer pays a dollar or euro and receives a token in their stablecoin account in the DLT ledger. The company must hold those dollars or euros in reserve (so that customers can redeem them at any time), but it is allowed to invest them in certain liquid asset categories. Which categories are permitted differs between the United States (under the Genius Act) and Europe (under MiCAR). Europe is somewhat stricter. Market leader Tether does not fall under U.S. regulation with its USDT stablecoin, as the company operates offshore. As a result, about two-thirds of Tether’s reserves are invested in U.S. Treasuries, roughly 10 percent in gold and around 5 percent in bitcoin. In 2025 the company reported a net profit of more than 10 billion dollar.
For European regulators, Tether is something of a nightmare: they see as the main risk of stablecoins the possibility that, despite issuers’ promises, the tokens might ultimately prove not to be fully backed if large numbers of holders try to redeem them at the same time.
As of February 23 this year, nineteen euro stablecoins are registered under MiCAR in the register maintained by Esma. Their size is still negligible in global terms. The registrations were made in Czechia, Germany, Denmark, Finland, France (five), Iceland, Lithuania (two), Luxembourg (two), Malta (two), the Netherlands (two), and Poland. In mid-2025, major European banks, now twelve in total including KBC, ING, Raiffeisen, and BNP Paribas, launched an initiative for a joint stablecoin under the name Qivalis. Qivalis expects to launch its euro stablecoin in the second half of 2026.