ECB Warns Dollar-Backed Stablecoins Threaten Eurozone Sovereignty, Stability

European Central Bank officials have raised alarms over the growing influence of U.S. dollar-backed stablecoins, warning they could undermine the eurozone’s monetary independence and financial stability. Jürgen Schaaf, an ECB adviser in the market infrastructure and payments division, emphasized that the increasing adoption of these digital assets risks creating a “dollarized” economy in Europe, limiting policymakers’ ability to manage monetary conditions effectively. The ECB’s concerns echo broader debates about the systemic risks posed by private stablecoins, which are now valued at $250 billion globally, with the majority pegged to the U.S. dollar [1].

The ECB’s warnings stem from the dual threat of financial instability and eroded monetary sovereignty. Schaaf highlighted that a sudden collapse of major stablecoins could trigger systemic shocks, particularly due to their lack of regulatory safeguards and the anonymity they offer, which facilitates illicit transactions. Additionally, he noted that if stablecoins begin offering interest-bearing accounts, they could siphon deposits away from traditional banks, weakening their capacity to lend and support economic activity. This shift, he argued, would tilt the financial landscape in favor of U.S. dollar dominance, exacerbating the eurozone’s reliance on foreign currency and infrastructure [3].

To counter these risks, the ECB is accelerating plans for a digital euro—a central bank digital currency (CBDC) designed to provide a secure, sovereign alternative. Unlike private stablecoins, the digital euro would be issued directly by the ECB, ensuring public trust and aligning with the institution’s mandate to maintain price stability. Schaaf stressed that the digital euro must be deployed swiftly to prevent the eurozone from ceding financial autonomy to U.S. dollar-backed tokens, which are already embedded in decentralized finance (DeFi) and fintech platforms. The Bank for International Settlements (BIS) has similarly criticized stablecoins for their inability to function effectively as money without robust regulatory frameworks and credit creation mechanisms [4].

The ECB’s stance reflects a broader strategic effort to protect Europe’s financial system from restructuring by foreign private interests. Schaaf warned that without decisive action, the eurozone could face a loss of control over its monetary policy, as dollar-linked stablecoins gain traction in cross-border transactions and everyday payments. This dynamic, he argued, could reduce the effectiveness of ECB interventions, such as interest rate adjustments, by channeling economic activity through unregulated digital channels. The official also underscored the potential for capital flight, where individuals and businesses might prefer stablecoins over traditional euros, further weakening the euro’s role as a pillar of European economic stability [5].

The ECB’s concerns are not without precedent. The European Central Bank blog post published on July 29, 2025, reiterated that the dominance of U.S. dollar stablecoins poses a direct challenge to the euro’s monetary sovereignty. The blog emphasized that the ECB must remain proactive in safeguarding its policy tools, particularly as stablecoins continue to reshape payment systems and capital flows. The institution has also flagged the risks of regulatory arbitrage, where insufficient oversight in one jurisdiction could create loopholes exploited by stablecoin issuers operating across borders [6].

As the debate intensifies, the ECB’s focus on the digital euro underscores its determination to reclaim control over Europe’s financial architecture. By offering a digital alternative anchored in public trust, the ECB aims to counteract the structural advantages of U.S. dollar stablecoins while preserving the euro’s role as a stable, sovereign currency. Schaaf’s warnings, however, highlight the urgency of the situation: without rapid action, the eurozone risks becoming a financial system increasingly subservient to U.S. dollar-backed digital assets, with long-term implications for its economic resilience and policy independence [7].

Sources:

[1] ECB Blog Post, https://www.ecb.europa.eu/press/blog/date/2025/html/ecb.blog20250728~e6cb3cf8b5.en.html

[3] Cryptopolitan, https://www.cryptopolitan.com/ecb-senior-official-warn-dollar-stablecoins/

[4] BIS Analysis, https://www.cryptopolitan.com/ecb-senior-official-warn-dollar-stablecoins/

[5] Finextra, https://www.finextra.com/newsarticle/46361/europe-must-provide-more-support-for-stablecoins-or-face-subservience-to-the-us-dollar

[6] ECB Blog Post, https://www.ecb.europa.eu/press/blog/date/2025/html/ecb.blog20250728~e6cb3cf8b5.en.html

[7] XT.com, https://www.xt.com/en/blog/post/are-us-dollar-stablecoins-undermining-europes-monetary-sovereignty