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- Economic experts warn that strict European rules might push users toward American digital currencies, causing a dependency on the U.S. dollar.
- The European Central Bank strongly opposes loosening rules, fearing it could reduce regular bank lending and weaken control over interest rates.
- Despite the debate, European banks are moving forward with plans to launch a shared euro-backed digital coin later this year.
A sharp division has emerged among Europe’s top financial minds over how to handle digital currencies. During an informal gathering in Nicosia, Cyprus, economic experts clashed with central bankers over the future of stablecoin, cryptocurrencies pegged to real-world currencies like the euro or the dollar.
The controversy is whether Europe should become lenient regarding its regulations to keep up with international competition or continue maintaining strict control because of the risk of undermining its conventional banking system. This controversy was introduced after three experts at Bruegel, an international economics think tank based in Brussels, introduced a novel idea.
They have stated that the EU must make its liquidity requirements for crypto issuers less stringent. According to the existing regulations under the Markets in Crypto-Assets Regulation, issuers are required to maintain large amounts in ordinary bank accounts. These strict regulatory requirements have made Europe lose out to its competitors.
The Risk of “Digital Dollarisation” in Europe’s Stablecoin Market
The authors noted that although the size of the global market of stablecoins reached $300 billion this year, only a meager 0.3 percent of that amount represents euro-backed coins, whereas Europe’s transactions constituted an impressive 38 percent of global activities at the end of 2025.
Accordingly, the authors warned that while the EU would maintain its strict regulations and at the same time the United States would benefit from using its more lenient 2025 GENIUS Act to promote the dollar, there will be a serious threat for Europe of ‘digital dollarisation,’ meaning the reliance of citizens solely on American digital currency.
This proposition immediately drew strong resistance from the President of the European Central Bank Christine Lagarde, and other central bankers who categorically dismissed any consideration of loosening regulations or allowing the ECB to provide liquidity facilities to cryptocurrency organizations.
As explained by central bankers, whenever a person buys stablecoins, his/her money departs from the bank. When such events happen en masse, the bank loses a regular inflow of funds and increases costs and reduces loans to customers.
The Battle for Europe’s Digital Currency Future
Lagarde was pessimistic about the idea of independent euro stablecoins. She instead emphasized the need to concentrate efforts on tokenization of commercial banks’ deposits, thus retaining the advantages of blockchain solutions while preserving the stability of conventional financial institutions.
Even though stablecoins could be helpful when it comes to affordable cross-border payments, policymakers still have vivid memories of the spectacular failure of the TerraUSD cryptocurrency in 2022. To avoid similar scenarios, some participants at the conference even proposed banning redemption operations involving tokens issued by foreign financial institutions in order to prevent massive withdrawal of deposits.
However, notwithstanding all concerns related to regulation, the private sector proceeds with its innovations. In particular, a consortium consisting of 37 banks from 15 different countries, known as the Qivalis project, is preparing to issue its euro-based stablecoin sometime this year. This development comes along with a general scheme of the ECB’s initiative to introduce a digital euro by 2029.
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