Stablecoins could weaken eurozone, warns ECB

The growing use of U.S. dollar stablecoins in Europe could weaken the ECB’s ability to manage the eurozone economy, according to Jürgen Schaaf, an adviser in the ECB’s market infrastructure and payments division. 

The European Central Bank continues to express concerns over the increasing dominance of U.S. dollar-backed stablecoins, stating that the widespread adoption in the Euro area could threaten Europe’s monetary sovereignty.

Dollar-linked stablecoins pose a risk to the eurozone

Jürgen Schaaf, an adviser in the ECB’s market infrastructure and payments division, stated that the eurozone might experience a “dollarized” economy, limiting policymakers’ ability to manage monetary policy effectively.

Stablecoins have grown into a $250B market globally. The majority of them are linked to the U.S. dollar, dominating crypto trading volumes worldwide.

Schaaf warned that this trend, together with political support for stablecoins in the U.S., will tilt the balance further in favor of the United States, potentially reducing the eurozone’s borrowing costs and increasing its financing costs.

The ECB official warned that stablecoins can potentially cause financial stability risks. If a major stablecoin experiences a sudden collapse, the shock could spread through the financial system. The anonymity associated with many of these coins also make them attractive for illicit transactions.

He pointed out the potential implications for the traditional banking sector as well, stating that if private stablecoins begin to offer interest bearing accounts, deposits will be diverted from commercial banks causing a decline in the banks’ ability to extend credit and perform their role in the economy.

The Bank for International Settlements (BIS) shared similar concerns, arguing that stablecoins “perform badly” as money due to the absence of efficient safeguards, regulatory oversight, and flexibility needed for credit creation.

The digital euro is a shield against private stablecoins

To counter the influence of these dollar-linked stablecoins and protect the eurozone’s financial autonomy, the ECB is fast-tracking plans for its own central bank digital currency (CBDC) called the digital euro.

Unlike stablecoins, the digital euro will be issued directly by the ECB and anchored in public trust. The ECB’s proposal aims to combine the efficiency of digital payments with the reliability of central bank money.

With U.S. dollar stablecoins gaining traction in both decentralized finance and mainstream fintech platforms, Schaaf argued that the ECB must act decisively to establish the digital euro, as it will function as a strategic tool to prevent dependence on foreign currencies and digital infrastructures.

Schaaf maintains that Europe cannot afford to let its financial system be restructured by foreign private interests. He also insists that the ECB must remain alert and proactive in guiding price stability and monetary control in the eurozone.

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