In a blog post this week, ECB official Jurgen Schaaf argued that widespread adoption of US dollar-denominated stablecoins in the euro area could erode the European Central Bank’s monetary policy control, drawing parallels to historical dollarization trends in economies like Ecuador and El Salvador, where foreign currency use reduced local central bank influence.
“Such dynamics would be difficult to reverse given the network character of stablecoins and the economies of scale in this context. The larger their footprint, the harder these would be to unwind,” Schaaf wrote.
In the same piece, he added that “such dominance of the US dollar would provide the United States with strategic and economic advantages, allowing it to finance its debt more cheaply while exerting global influence. For Europe, this would mean higher financing costs relative to the United States, reduced monetary policy autonomy and geopolitical dependency.”
To guard against the threat, European institutions should do more to support regulated euro-denominated stablecoins, Schaaf says, noting failure to act could amount to a strategic blind spot.
“Euro-based stablecoins, if designed to high standards and effective risk mitigation, could serve legitimate market needs. They could also reinforce the international role of the euro,” he wrote.
On that note here’s the story I wrote for Politico a few weeks ago about the stablecoin start-ups hoping to respond to that challenge
Meet the stablecoin start-ups flying the flag for Europe
In a world where dollar-backed stablecoins account for nearly all of the $160 billion global market, launching a euro or sterling competitor might sound quixotic.
Yet a handful of European founders see not just room, but necessity, for change.
Their start-ups, AllUnity and Agant, are developing stablecoins anchored to the euro and the pound, respectively. What sets them apart — and what they hope will win over regulators and central banks — isn’t just the promise of digital cash. They believe they can provide serious long-term term support to government bond markets at a time when persistent budget deficits and rising debt burdens are eroding confidence in sovereign debt more widely.
“We want to be like Circle and Tether — where we’re one of the biggest holders of U.K. government debt,” Agant’s co-founder Reuben Blamey, told POLITICO, referencing the world’s two largest U.S. dollar stablecoins. “That’s a positive thing for the government. If the U.K. government wants to raise money, the best way to do that is to champion U.K. stablecoins.”
The eclectic group of investors behind AllUnity is a decent guide to the place in the financial system to which the German fintech aspires: its DNA is a hybrid of DWS, the staid, blue-blooded asset management arm of Deutsche Bank, high-frequency trading group Flow Traders and Galaxy Digital Holdings, the investment vehicle controlled by unabashed crypto booster Mike Novogratz.
To begin with, AllUnity plans to back its tokens 100 percent with cash collateral held directly at licensed banks. This, however, is simply to build public trust. The company is already discussing the role it can play in Germany’s broader financing strategy with the Ministry of Finance, according to CEO Alexander Höptner, who used to run crypto exchange BitMEX.
“This is on our roadmap, even if not directly to start,” Höptner told POLITICO. Either German or EU-issued bonds could serve as collateral for the coin issuance, he noted.
While stablecoins are increasingly the rage in finance circles, it’s yet to be determined whether the new-fangled products — especially when denominated in non-dollar currencies — will really elicit the same enthusiasm from customers. For much of their short history, stablecoins have principally been used as the gateway between the traditional finance world of fiat currencies and regulated institutions, and the Wild West world of cryptocurrencies.
But their ability to move money quickly and cheaply between countries and different kinds of assets has excited many financial professionals, who have been frustrated for years by the high costs and slow executing times of traditional payment rails.
In theory, the blockchain technology behind stablecoins radically reduces transaction costs by using public blockchain infrastructure instead of conventional bank settlement systems. And in contrast to cryptocurrencies, it does so without exposing users to high levels of volatility.
If Blamey and Höptner are right, the secret sauce to their stability — the fact that issuers have to back every outstanding unit of supply with a cash deposit or investment in government bonds — could also be a boon for governments worried about rising borrowing costs.
In practice, not everyone is a fan. Critics say the tech is still clunky and prone to logjams, while most of the operating cost is merely transferred to users and speculators. In particular, European Central Bank President Christine Lagarde has voiced concerns that dollar-denominated stablecoins could pose a stability risk for the eurozone in the event of market stress, making it too easy to stage a run on the euro. Lagarde is seeking to differentiate tokens issued in the EU from those issued abroad, so as to manage the risk.
Others, such as the Basel-based Bank for International Settlements, sniff that stablecoins still can’t guarantee that they can always be exchanged at par for the money they are supposedly pegged to (something the bankers refer to as the singleness of money). In a study last month, it also argued that in times of crisis, stablecoins can’t really substitute for traditional money, because their issuers can’t create it at the drop of a hat in the way that a traditional, regulated bank can. As such, over-reliance on privately-issued stablecoins could threaten the singleness of money in a crisis. For the eurozone, which still frets about breaking up along national lines, that is a particularly concerning vulnerability.
For others, the greater risk is losing ground to the U.S. in a market it already dominates.
In a recent oped, former ECB executive board member, Lorenzo Bini Smaghi — now the chair of French lender Société Générale — argued it would be misguided to try to ban or restrict stablecoins despite the sovereignty risks they pose, saying it was neither “feasible nor desirable”.
Bini Smaghi argued it would be better to lean into the trend directly. “Unless euro stablecoins are issued and widely used in Europe, euro-area deposits will migrate to foreign platforms,” he wrote. By contrast, he echoed the startups’ argument that allowing euro stablecoins to scale up can “support the financing of public debt, since issuers are required to back them with government bonds.”
SocGen was among the first banks to test the digital currency waters, announcing in June that it would be launching its own dollar-pegged stablecoin, dubbed “USD CoinVertible.” Its euro-pegged sibling, launched two years ago, now has some 48 million tokens in circulation.
Tony McLaughlin, whose stablecoin start-up Ubyx has just raised $10 million in venture funding, agreed that European countries cannot afford to be left behind. He has been calling on the U.K. to adopt a similarly pro-stablecoin policy for statecraft purposes.
“The global stablecoin market is developing with or without U.K. participation,” he said. “The choice is whether Britain positions itself as a central hub capturing the associated economic benefits, or remains a peripheral player imposing restrictions on an innovation it cannot ultimately control.”
It’s a concept already well understood in Washington, where dollar stablecoins like USDC and USDT have quietly become massive buyers of Treasury bills. Höptner’s AllUnity is effectively proposing a mirror image — except one with a full regulatory licence from BaFin, Germany’s financial regulator.
“I don’t want to go on some fancy island,” he says. “I want to do this with the regulator from the start.”
Even so, the U.S. is already years ahead. Not only is it about to enshrine a much more liberal stablecoin legal framework in the form of the GENIUS Act, it already boasts a booming market for tokens backed by T-bills and money market funds.
European challengers may be building under full regulatory supervision — Agant is navigating its route via the U.K.’s Financial Conduct Authority and Bank of England — but even in their home markets, they remain underdogs in a game that’s heavily tilted toward Washington.
For Höptner and Blamey, that’s exactly why their respective governments should back them. Without a domestic alternative, they say, the digital finance revolution will leave Europe and the U.K. dependent on foreign money, foreign rails — and foreign credit.
What’s more, the only viable European challenger in the eurosystem, the digital euro, is still years away from deployment, bogged down in political wrangling over who will pay for it, how it will be distributed, and what the limits on usage should be. This contrasts with the Chinese central bank digital currency (CBDC), or e-yuan, which is already fully operational, even if it is overshadowed by the private payment apps WeChat and Alipay, which have built up formidable positions in Chinese e-commerce.
“If something comes as early as 2026, which spans 2027 in the testing, then we’re talking 2028-2030. That’s too late,” Höptner said, adding that the problem of servicing large-scale institutional or corporate demand — which the digital euro does not cater to — remains. “We’re not against CBDCs. There will be use-cases for CBDCs, for deposit tokens, and for stablecoins. But we need all of them. Not one or the other.”
For Agant, the corporate and institutional need for a sterling-flavored alternative is central to their business case too.
“If you’re a U.K. PLC holding pounds on your balance sheet, and you want to tokenize or settle trades on chain, doing that in dollars opens you up to unnecessary FX risk,” Blamey said. “A pound stablecoin gives you settlement functionality in your native currency, 24/7.”
Like its euro cousin, Agant’s GBP token will be backed predominantly by U.K. government gilts and money market instruments. Users won’t earn yield directly — issuers legally can’t pay interest — but they’ll gain liquidity and functionality on public blockchains, with all the real-time interoperability that entails.
“You’re not buying GBPA for the yield,” said Blamey. “It’s a collateral instrument and a settlement instrument in pound sterling, but the government benefits directly too.”
From a fiscal perspective, the promise is seductive: stablecoins offer a new structural bid for sovereign debt, at a time when traditional buyers — pension funds, central banks, and banks themselves — are increasingly reluctant.
“It’s an identity play. A sovereignty play,” Blamey says. “If we don’t have a European solution, we’ll have to accept what is provided to us. And that’s not a good idea.”
