The widespread adoption of US dollar-denominated stablecoins for payments and settlements within the European Union could potentially compromise the European Central Bank's ability to regulate monetary conditions. According to an ECB adviser, the pervasive use of these stablecoins, which are digital assets backed by the US dollar, may have a similar impact on the EU as the US dollar has on developing economies, making it more challenging for policymakers to set interest rates and manage the money supply.
This could lead to a gradual erosion of the ECB's monetary autonomy, echoing patterns observed in dollarized economies, where users often seek perceived safety or yield advantages not available in euro-denominated instruments. The adviser emphasized that the dominance of US dollar stablecoins, such as Tether's USDT and Circle's USDC, which collectively account for over 80% of the total stablecoin market capitalization, could provide the United States with strategic and economic advantages, including cheaper debt financing and increased global influence. To counter this threat, the adviser suggested that support for euro-backed stablecoins should be strengthened, and that the introduction of a digital euro, a digital currency issued by the ECB, could serve as a robust defense of European monetary sovereignty. The ECB is not alone in its concerns, as China is also exploring the need for a regulated offshore yuan stablecoin to mitigate the dominance of US-backed stablecoins.