Central bankers in the European Union are arguing that dollar-backed stablecoins could threaten their ability to formulate monetary policy.

Over the past year, the stablecoin market has flourished, primarily driven by legal certainty in the United States. Each month, the market capitalization of stablecoins has reached new highs. However, policymakers at the European Central Bank (ECB) are concerned about what this increased adoption of dollar assets might mean during times of crisis.

Issuers of stablecoins backed by the euro and the pound are also aware of these risks, but they do not believe that proposed solutions like a digital euro can provide an alternative quickly enough. They also question the suitability of central bank digital currencies.

Instead, issuers believe that a de-dollarization solution in Europe would lead to a thriving European stablecoin ecosystem.

In July 2025, Jürgen Schaaf, an advisor in the ECB's Market Infrastructure and Payments department, warned that the growing prevalence of dollar-based stablecoins in Europe "could replicate the patterns seen in 'dollarized economies'." This means that central banks' "control over monetary conditions may be weakened."

Schaaf pointed out that this situation is particularly evident if "users seek security or yield advantages that euro-denominated instruments cannot provide."

There are widespread concerns about systemic risk as well. According to the Financial Times, Olaf Sleijpen, president of De Nederlandsche Bank, stated on Monday that if U.S. stablecoins continue to develop at their current pace, "they will become systemically important at some point." Once this level is reached, a run on these assets would force the ECB to "reconsider monetary policy" to ensure the stability of the financial system.

According to Schaaf, currently, 99% of the $300 billion stablecoin market is backed by the dollar. Euro-denominated stablecoins amount to only €350 million ($405 million). Dollar-based stablecoins far outpace their euro-based counterparts.

Schaaf noted that while there are some projects in existence and some European banks are reportedly preparing to enter the market, the overall scale remains limited.

Gísli Kristjánsson, CEO of Monerium, revealed to Cointelegraph that the company issues stablecoins backed by various fiat currencies, including the euro, dollar, pound, and Icelandic króna. "The initial push for stablecoin adoption came from the demand generated by crypto exchanges due to the lack of traditional banking channels."

As the dollar has been established as "the primary quote asset for crypto traders," this "naturally led to the dominance of dollar-denominated stablecoins."

Kristjánsson also pointed out that the dollar has traditionally been favored in regions where local currencies are weak, as savers and investors wish to hold "a globally recognized strong currency."

However, he stated that euro-based currencies could narrow this gap. "The main barrier to broader adoption of euro-based stablecoins is the lack of real use cases that resonate with mainstream users, rather than just cryptocurrency speculation."

Kristjánsson continued:

He noted that interest in using such stablecoins for payments has increased, as Europeans convert dollar-based stablecoin wages into assets more widely used in Europe.

But if policymakers' main concern is the diminishing role of the euro, then "supporting the development of a strong euro stablecoin ecosystem is the most effective strategy to counter this trend and ensure the euro remains relevant in the digital economy."

Schaaf also pointed out that "unless a credible euro alternative emerges, dollar stablecoins may solidify their early dominance."

One of the points of contention between central bankers and the cryptocurrency space is what form this alternative should take: private stablecoins or central bank digital currencies (CBDCs).

Monetary policymakers are already working on developing a digital currency for the eurozone. Since the ECB first published a report on the digital euro in 2020, the bank has slowly begun seeking stakeholder opinions, conducting infrastructure experiments, and preparing legislative work for submission to the European Council and European Parliament in 2026.

According to the ECB, the project's goal is to "reduce the eurozone's dependence on non-European providers, help unify the fragmented payment landscape, and support innovation and competition."

Stablecoin issuers who spoke with Cointelegraph are uncertain about the effectiveness of the plan. Andrew MacKenzie, founder of UK-based stablecoin issuer Agant, stated that so far, most CBDC proposals "have shown limited functionality and are poorly constructed, lacking an understanding of the distribution and availability characteristics necessary for successful adoption."

He questioned whether central bank-issued digital currencies could provide the "accessibility, functionality, and global transferability" of major global stablecoins, or "meet the needs and demands of real use cases and markets." MacKenzie asked whether CBDCs would fall into "bureaucracy, risk management, political debates, and procurement scandals."

For Kristjánsson, the anticipated launch date of the digital euro in 2029 may be "too late to effectively respond to the dynamics of current stablecoin adoption."

Uncertainty remains. It is still unclear whether the digital euro will operate on a blockchain or other proprietary systems. Proposed holding limits would "negate many of the inherent advantages offered by private stablecoins, such as scalability and decentralized access."

Additionally, Kristjánsson believes that the digital euro is a "competing product" to stablecoins, diverting attention from the emerging European stablecoin ecosystem that could effectively address central bankers' concerns about the dollar. "The ECB has not been helpful in this regard."

This does not mean that central banks and stablecoin issuers cannot collaborate. MacKenzie stated that stablecoins "are closely tied to the fiat banking system," with issuers holding traditional supporting assets, including commercial bank deposits. He also noted that the recent proposal from the Bank of England provides liquidity to stablecoin issuers.

Whether in the form of private stablecoins or a digital euro closely monitored by the ECB, the sovereignty of European monetary policy depends on the development of digital currencies.

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Original article: How Euro Stablecoins Could Address EU's Dollar Concerns

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