An advisor to the European Central Bank expresses concerns about the spread of Dollar-denominated stablecoins | CoinDesk JAPAN

• An advisor to the European Central Bank (ECB) stated that US Dollar-denominated stablecoins could weaken the ECB's control over monetary policy in the EU.
• Jurgen Scharf suggested that the dominance of stablecoins could provide the United States with strategic and economic advantages.
• In response to this, Mr. Scharf is advocating for the development of a Euro-backed stablecoin and a digital Euro to protect European monetary sovereignty.

The extensive use of US Dollar-denominated stablecoins for settlements in the European Union (EU) could undermine the control of the financial environment by the European Central Bank (ECB), according to an advisor at the ECB.

Jürgen Schaaf stated in a blog post on July 28 that if the US Dollar-backed stablecoin, which is a cryptocurrency backed by the US Dollar, becomes widespread in the EU, it could have similar effects on developing countries as the US Dollar does. In particular, it may become difficult for policymakers to set interest rates and control the money supply.

Mr. Scharf stated, "This erosion is gradual, but particularly when users seek the safety and yield advantages not present in euro-denominated financial products, it could replicate the patterns seen in a dollarized economy."

The largest stablecoins are Tether (USDT) and Circle's USD Coin (USDC), which account for over 80% of the market capitalization of stablecoins that rose to $271.8 billion (about 40 trillion 770 billion yen, based on an exchange rate of 1 Dollar = 150 yen) following the establishment of the U.S. stablecoin law on July 19.

Mr. Scharf stated that while the American Genius Act is similar to the EU's cryptocurrency market regulation (MiCA), it has less stringent regulations in some areas. Investment bank Standard Chartered pointed out in April that the implementation of this law could lead to the stablecoin market growing to a size of $2 trillion (approximately ¥300 trillion) by the end of 2028.

Mr. Scharf states that "unless a reliable alternative currency in Euros is realized, USD-denominated stablecoins are likely to establish supremacy early on." He also notes that this supremacy "will bring strategic and economic advantages to the United States, enabling it to exert global influence while raising debt at lower costs."

Mr. Schaaf stated that in cross-border transactions, Dollar-denominated stablecoins could directly compete with Euro-denominated financial products. He also added that digital representations of cash are essential in token payments, which may heavily rely on Dollar-denominated stablecoins.

Mr. Scharf suggested that support for euro-backed stablecoins should be strengthened to mitigate such threats. He also indicated that the digital euro, which is a central bank digital currency (CBDC) issued by the ECB, could play a significant role.

Mr. Scharf stated, "The digital euro will serve as a strong line of defense to protect Europe's monetary sovereignty."

It is not only the ECB that is concerned about the dominance of stablecoins pegged to the US Dollar. Evan Ayuang, president of Animoca Group, stated in an interview with CoinDesk last week that China is also considering the need for regulated offshore Renminbi (CNH) stablecoins.