ECB Advisor on CBDC and Dollar-Based Stablecoins
An advisor to the European Central Bank (ECB) has suggested that the central bank’s digital currency (CBDC) alone may not be sufficient to compete with the growing prevalence of dollar-linked stablecoins. In a blog post on the ECB’s website, Jurgen Schaaf laid out several strategic options for the European Union to respond to the increasing prominence of these stablecoins.
Among his proposals were the creation of euro-based stablecoins, enhancing distributed ledger technology (DLT) applications, and further development of the digital euro. He pointed out the existing regulatory disparities between the U.S. Genius Act and the EU’s MICA regulations regarding crypto, stressing the need for stronger global stability regulations.
Leveraging Euro-Based Stablecoins
Schaaf emphasized the importance of promoting well-regulated euro-denominated stablecoins as a primary response to U.S. developments in this area. “While there’s often a preference for institutional neutrality, the blind spot in this sector can come at a considerable cost,” he remarked.
He noted that euro-based stablecoins, when designed with high standards for risk mitigation, can fulfill market requirements and strengthen the euro’s global position. However, some studies indicate that the adoption rates for euro-based stablecoins remain sluggish.
Earlier this year, Fabiopanetta, the Governor of the Bank of Italy, highlighted the limited reach of euro stablecoins, even as the MICA framework aims to encourage their use. He insisted that the digital euro is essential to overcoming the slow adoption of euro stability.
Role of the Digital Euro
Schaaf framed the digital euro as just one component of a broader digital payment strategy. He suggested that public CBDCs, alongside private innovations and DLT, could play a crucial role in maintaining European financial sovereignty. “The digital euro can robustly safeguard this sovereignty in payment interactions,” he noted.
While not dismissing the concept of the digital euro, Schaaf focused on how DLT could enhance both domestic and cross-border payments. Recently, the ECB approved two DLT pilot projects aimed at bolstering European payment infrastructure.
Looking Ahead to 2025
Schaaf’s recent comments indicate that Europe is exploring a multifaceted approach to counteracting U.S. leadership in stablecoins, rather than focusing solely on the digital euro. Concerns about the prominence of U.S. digital financial technologies have grown since an executive order aimed at strengthening dollar dominance was signed by the former U.S. President.
ECB officials have consistently argued that introducing a digital euro could help preserve financial sovereignty in the eurozone. Following the transition to the “preparation phase” for the digital euro last November, it remains uncertain whether the ECB will proceed with its implementation. Any decision regarding the advancement to the next phase is expected by the end of 2025.
