Federal Reserve Governor Stephen Miran downplayed the idea that Europe can chip away at dollar dominance by embracing digital euros or euro-pegged stablecoins, noting the dollar’s dominance rests on deeper structural foundations.
“I think the dollar will remain structurally dominant against those challengers. I don’t see any realistic competitors to the dollar,” Miran told The Peg in an interview on Wednesday.
His remarks come as European officials — many of whom are seeking to reduce reliance on U.S. payment providers — debate whether stablecoins pose a risk to euro stability or could, if issued in euros, help support the currency’s internationalisation.
Many policymakers — including European Central Bank President Christine Lagarde — argue that the launch of the digital euro will help to strengthen the currency’s role in international reserves, chiefly by improving cross-border euro payments.
But most officials feel very differently about stablecoins. More than 99 percent of global supply is denominated in U.S. dollars and concerns are rife that widespread adoption could expose the eurozone to dollarisation, undermining the currency union’s monetary sovereignty.
However, in a sign that the mood may finally be shifting, Bundesbank President Joachim Nagel said in a speech last week that the eurosystem should consider supporting “DLT-based payment instruments not directly related to central bank money”. This would include both tokenised deposits and euro-denominated stablecoins. On Monday, he added there may be “merit in euro-denominated stablecoins” if they enable low-cost cross-border payments for households and businesses.
This evolving stance comes as the ECB announced on Saturday that it would extend backstop euro liquidity to all non-euro area central banks, apart from those excluded on grounds of money laundering, terrorist financing, or breaches of international sanctions
Miran, however, suggested that such initiatives misunderstand what underpins reserve currency status.
“If you think about being an international currency, you want to be convertible, you want to be deep, you want to be liquid, and you also want to be a growing share of global GDP,” he said. “I see a lot of reasons for expecting U.S. economic growth to continue diverging to the upside versus global GDP growth.”
Miran also said he doubted that digital “wrappers” like stablecoins will ever be able to compensate for structural fragmentation in European sovereign bond markets and an undersized economy relative to that of the U.S.
“Taking highly fragmented markets and putting a wrapper around them doesn’t necessarily create the type of infrastructure that would be a very significant rival to the dollar,” he said.
Pressed on whether jointly issued eurobonds could alter the calculus, Miran declined to weigh in on specific European policy choices.
“I don’t want to tell the Europeans what policies they should pursue. They should decide that for themselves,” he said, noting that the eurobond debate “gets deep into a set of questions about sovereignty and democracy, and the role of the EU and the role of the national governments.”
Having your reserve cake and eating it
Miran previously stated that stablecoins could allow billions of people who are subject to domestic capital controls to access the dollar system more easily.
“Once stablecoins are in circulation in an economy, they can circulate more freely and cheaply behind capital controls than traditional forms of dollar payments,” he said in a speech in November.
However, when speaking to The Peg, he rejected the notion that U.S. sanctions policy or anti-money-laundering enforcement might in the long run weaken the dollar’s appeal in international markets.
The debate over the degree to which enforcement actions or sanctions may undermine the dollar’s reserve status has intensified since the freezing of Russian central bank assets in 2022 — particularly amid ongoing discussions about whether those assets will ultimately be seized or repurposed.
Miran, however, questioned that premise.
In his view, the United States can maintain the openness and liquidity required of a global reserve currency while still deploying sanctions and anti-money laundering tools. Far from weakening the system, he argued, enforcement underpins it.
“Those types of tools are deployed on people who are violating the law or undermining the system that the United States is underwriting,” he said. “The use of those tools ends up reinforcing the system itself rather than undermining it.”
Major dollar stablecoin issuers, including Tether, have increasingly emphasized cooperation with U.S. authorities in freezing illicit funds and assisting investigations — aligning themselves with, rather than resisting, the enforcement architecture of the dollar system.
For European policymakers, however, the issue is less about whether enforcement reinforces the dollar system and more about the leverage embedded within it.
With Washington demonstrating its willingness to weaponise access to the dollar system, European officials have grown more conscious that such leverage — however justified in specific cases — can be turned against them too. In recent months, many European officials have specifically begun to worry about what might happen to financial stability in Europe if the Federal Reserve were to cut the ECB off from dollar liquidity by expiring central bank swap line arrangements.
The realisation is contributing to accelerating calls in Europe for greater “strategic autonomy” and internationalisation the euro.
Yield-bearing stablecoins and Fed control
On domestic policy, Miran told The Peg that allowing dollar-backed stablecoins to pay interest would not weaken the Fed’s control over monetary transmission. As long as the underlying reserves remain invested in rate-sensitive assets, he said the central bank retains control over the pricing of money, even if the ownership structure shifts.
“I don’t think it would really necessarily impact monetary policy transmission so much, because stablecoins are just wrappers,” he said.
“If you own a Treasury bill or money market fund or bank deposit directly, or you own a stablecoin, and the stablecoin provider then owns the Treasury bill or the money market fund or the bank deposit, economically there’s not really that much of a difference.”
He was, however, more cautious on financial stability implications.
“Financial stability is an issue that I’m studying and still trying to get my head around,” he said.
“I’ve seen very strong arguments made by groups with all sorts of perspectives on it. It’s not an area where I’ve reached a very firm conclusion yet.
Stablecoin platforms and banks are currently engaged in a bitter feud over how the proposed Clarity Act should treat dollar-pegged stablecoins, particularly whether intermediaries should be permitted to pass through interest or other yield to token holders.
Banks argue that allowing interest-bearing stablecoins could encourage customers to shift funds out of insured bank deposits and into digital tokens, potentially reducing a key source of bank funding. Regulators have cautioned that, at sufficient scale, such a shift could affect credit availability and broader financial stability.
Stablecoin proponents, however, contend that clear rules — including on reserves, supervision, and permissible activities — would reduce systemic risk rather than increase it.
