The "financial weapon" of the United States? ECB: The rise of the dollar stablecoin will weaken the control of European monetary policy.

The dominance of the US dollar stablecoin will bring strategic and economic advantages to the United States, allowing it to finance its debt at a lower cost while exerting global influence.

Written by: Bao Yilong, Wall Street Journal

The European Central Bank warns that a dollar-dominated digital currency system poses a strategic challenge to European monetary sovereignty. Without strategic countermeasures, European financial stability and monetary autonomy may be eroded.

On July 28, Jurgen Schaaf, an advisor in the European Central Bank's Market Infrastructure and Payments Department, published an article stating that if dollar stablecoins are widely used in the Eurozone, the ECB's control over monetary policy may be weakened.

The US dollar stablecoin dominates the global market with an absolute share of about 99% of the total stablecoin market value. In contrast, the euro stablecoin remains in a marginal position, with a market value of less than 350 million euros.

(The US dollar stablecoin holds an absolute dominant position in the global market)

As the GENIUS Act signed by Trump may take effect within weeks, the supply of stablecoins is expected to grow from $230 billion in 2025 to $2 trillion by the end of 2028. Schaff warns that this trend, along with political support for stablecoins in the United States, will further tilt the balance in favor of the U.S., potentially lowering borrowing costs in the Eurozone and increasing its financing costs.

Earlier, European Central Bank officials warned that stablecoins could pose risks to financial stability. If a mainstream stablecoin were to suddenly collapse, the shock could spread throughout the entire financial system. According to the Bank for International Settlements in its "Annual Economic Report 2025," many stablecoins have previously experienced "severe deviations" from their pegged exchange rates.

Potential Impact on European Monetary Sovereignty

If the US dollar stablecoin is widely used for payments, savings, or settlements in the euro area, the European Central Bank's control over monetary conditions may be weakened.

The use of stablecoins is rapidly expanding. Initially used for cryptocurrency trading and cross-border remittances, they have now been adopted by mainstream payment and business giants.

Major U.S. card organizations such as Visa and Mastercard have begun to integrate stablecoins into their global products, while retailers like Walmart and Amazon are also exploring the use of stablecoins, which could lead to a significant amount of transactions bypassing the traditional banking system.

Shaf pointed out that some platforms even offer interest for stablecoin holdings, making their function similar to money market funds, which could divert bank deposits and pose a greater threat to the bank-centric European financial system.

Although this erosion is gradual, it may replicate the patterns observed in some "dollarized" economies, especially when users seek safety or yield advantages that euro-denominated instruments cannot provide.

Once this dynamic is formed, it will be difficult to reverse given the "network effects" and economies of scale of stablecoins. In the tokenized settlement space, reliable digital cash equivalents are crucial; without a credible euro alternative, USD stablecoins may solidify their first-mover advantage.

Analysis suggests that the U.S. dollar's dominance will provide the United States with strategic and economic advantages, allowing it to finance its debt at a lower cost while exerting global influence. For Europe, this means higher financing costs relative to the United States, a loss of monetary policy autonomy, and geopolitical dependence.

Europe's Response Strategy Choices

In the face of this situation, Schaff stated that the ECB obviously has no room for complacency, but there are still various options in the ECB's policy toolbox.

First, policymakers can provide more support for euro-denominated stablecoins that are properly regulated. If designed well and effectively mitigate risks, high-quality euro stablecoins can meet legitimate market demand and help enhance the international role of the euro.

Secondly, the European Central Bank's digital euro project and innovations from the private sector should be viewed as complementary elements within a broader European digital payments strategy. In particular, at the payment interaction level, the digital euro is expected to serve as a strong line of defense for upholding European monetary sovereignty.

Third, strengthening the application of Distributed Ledger Technology (DLT) in financial markets is crucial. The recent short-term and long-term measures announced by the European Central Bank system—Pontes and Appia projects—are key contributions in this area, aimed at improving cross-border payment efficiency and settlement capacity.

Finally, global coordination in strengthening stablecoin regulation is crucial. Without consistent rules, the current fragmented landscape may persist, exacerbating financial instability, regulatory arbitrage, and the dominance of the dollar globally.

In summary, stablecoins are no longer a niche item, but an indispensable part of digital finance. The stable institutional framework and rules-based approach in Europe provide a foundation of trust. If this advantage can be leveraged through sound regulation, infrastructure investment, and digital currency innovation, the euro may become stronger in this transformation.