Dollar Stablecoins Threaten Europe's Monetary Autonomy, ECB Blog Argues

The dollar's early dominance of stablecoins gives the U.S. an advantage that could ultimately push up borrowing costs for Europe, reduce the ECB's autonomy and increase geopolitical dependency on the U.S., an ECB blog post argued on Monday.

Stablecoins, crypto assets pegged to a currency such as the dollar, have gained popularity in recent years and got a big boost earlier this month when U.S. President Donald Trump signed a law to create a regulatory regime, aimed at cementing the dollar's status as the global reserve currency.

"Such dominance of the U.S. dollar would provide the United States with strategic and economic advantages, allowing it to finance its debt more cheaply while exerting global influence," ECB adviser Jürgen Schaaf said in a post that does not necessarily reflect the ECB's own views.

"For Europe, this would mean higher financing costs relative to the United States, reduced monetary policy autonomy and geopolitical dependency," he added.

If dollar-based stablecoins become widely used in the euro area, for payments, savings or settlement, the ECB's control over monetary conditions could be weakened, Schaaf argued.

Dollar-pegged stablecoins issued by Tether and Circle have dominated the global market and the share of euro-denominated stablecoins remains marginal, with market capitalisation of less than 350 million euros, the blog post said.

Europe should thus act quickly, creating the digital version of its euro currency, a project, that is being held up by legislative delays, and should foster the creation of more euro-based stablecoins.

The EU should also foster the use of distributed ledger technology to speed up cheap cross-border payments, the blog argued.

"Finally, stronger global coordination on stablecoin regulation is pivotal," the blog said. "If we forgo a common approach, we risk fuelling instability, regulatory arbitrage and global U.S. dollar dominance."

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