The meritless concern

The concern goes something like this: as soon as the currently considered stablecoin regulation is implemented in the US, USD stablecoins from strong financial players in the US will push even harder than today to gain footholds in the EU as payment and settlement currency generally.

This growth will be at the expense of EUR use as payment and settlement currency in the EU. In addition, given the fully funded nature of stablecoins, this would mean more investments into US Treasuries (or other related USD instruments) and away from EU bonds or bank deposits.

These concerns are overwrought.

  1. It is hard to see how a USD stablecoin can deliver any benefits, within the EU, that a EUR stablecoin won’t do better. All EU financial services (banks, payment providers, fund managers, etc.) are so much better integrated for EUR usage than for USD.
  2. The EU has already drawn clear regulatory lines (MiCAR) around the issuers of stablecoins. This means all mainstream stablecoin providers in the EU will be under EU regulation and oversight to ensure financial stability and consumer protection. Having this in place is so much more important to ensure EU financial stability than debating the currency unit.
  3. In the highly unlikely event that USD in a stablecoin format becomes a mainstream unit of currency for transactions within the EU, and capital — due to the fully funded nature of a stablecoin — should be moving from EU assets to US-based assets, there are plenty of financial instruments and markets available that can satisfy the need for matching a USD liability with EU-based assets. To be clear: this is purely an abstract consideration, as the situation seems exceptionally unlikely to come to pass.

The opportunity for EU-based USD stablecoins

On transactions between the EU and the world, one should still expect to see USD as the principal currency for the next many years.

There are US actions taken at this moment that suggest the US doesn’t want to be the dominant global transaction or reserve currency — or to act as the global safe-haven investment location — and so over the next decade or more we might see some transition away from using USD as the currency unit for global transactions and into something more regional. We might also see reserves moving away from USD safe-haven assets (US Treasuries) into something more geopolitically balanced (USD, EUR, JPY, CNY, etc.) and more into geopolitically neutral assets (gold, bitcoin, etc.).

From the point of view of the EU, given one believes in this potential transition, it makes sense to have USD stablecoins issued in the EU under EU regulations and control. In this way, EU entities can do global trade in the currently chosen global principal currency unit, yet rely on the EU to allow this digital currency to be issued in an appropriate secure format with EU local guardrails and controls.

As the global transaction currency and safe-haven questions get solved over the next decade, the EU-based stablecoin issuers can easily move with these solutions to deliver the right currency unit to EU-based entities for global trade — and thus the EU will have delivered a stable situation in the EU when it comes to digital trade currency.

Originally published on Medium, April 2025.