Digital Euro vs. Stablecoins: Untangling the Debate

Digital Euro = good. Stablecoins = bad. Really?

The Stable Standard: Views from AllUnity
By Alexander Höptner

What is actually going on with the constant noise around stablecoin risks, the push for the digital Euro over stablecoins, and what any of this has to do with European sovereignty? Let's break it down because the confusion is bleeding into too many important discussions.

Start with the basics

There are different forms of monetary interaction: central bank money, deposit money, commercial bank money, and e-money. All fully regulated in the EU, all happily coexisting for years. Now we are tokenizing them. CBDCs, deposit tokens, commercial bank tokens, and e-money tokens. 

In public debate, stablecoins refer to tokenized e-money. But technically, any tokenized form of money backed by a stable reserve asset is a stablecoin. They are all Euro. No crypto, no exotic assets, just Euro. The only real difference is who issues it.

Three things follow from that, and they are worth stating plainly. 

1. Tokenizing something does not make its original purpose disappear

If there was a reason to have central bank money, deposit money, and e-money before tokenization, that reason does not vanish because the technology improved. Technical optimization makes things more efficient. It does not make the underlying use case go away. 

2. The risk argument does not hold up either

The risk of a stablecoin has two parameters: technology risk and issuer risk. Assuming the same regulatory requirements, the real risk is issuer risk, not technical risk. That varies by issuer, but it is not a reason to condemn the whole category.

If e-money tokens are so dangerous to the European financial system, why did we allow e-money to run for years without raising alarm about the risk? Same regulatory framework, same license, just newer technology. 

Regulation governs function, not technology. MiCAR gives us a framework solid enough that major jurisdictions around the world are borrowing from it. So either we have a sound regulatory framework, in which case let's stop treating stablecoins as inherently risky, or we do not, in which case let's fix it. Pick one.

The ECB's specific concern about stablecoins pulling deposits away from banks and weakening credit supply is real and worth taking seriously. The working paper evidence on deposit substitution effects is not nothing. But the conclusion that the answer is restricting euro stablecoin development gets the logic backwards.

Bruegel makes the point clearly: if EU regulation makes euro stablecoins unviable, it does not make the demand for stablecoins go away. It just pushes that demand toward dollar-denominated instruments regulated in Washington. According to Bruegel based on Artemis data, Europe-based stablecoin transactions already make up 38 percent of global volumes, almost entirely in dollar tokens. The deposit risk the ECB is trying to prevent is already arriving, just through a channel that bypasses EU regulatory oversight entirely. A well-regulated, euro-denominated stablecoin market is not a threat to European bank lending. It is the alternative to a much worse outcome. 

3. Sovereignty is being conflated with the wrong problem

This is where the debate gets most tangled.

Yes, Europe has leaned too heavily and for too long on US infrastructure and US players to run its payment systems. That is a real strategic risk and addressing it makes complete sense. But that is a different question from protecting the Euro's position as a global reserve currency against USD dominance. 

Do we really think the Euro's standing as the world's second largest reserve currency will be secured by making sure European citizens can pay with a digital Euro at their local grocery store? 

The Euro's global standing is fought and won in cross-border business with Asia, Latin America, Africa, and the US. That is where the real battle is, not at the checkout counter.

A retail digital Euro competes with existing retail payment mechanisms, many dominated by US players, and it has a genuine role there. But it is not a tool for global trade or cross-border real economy business. SEPA Instant is excellent but stops at Europe's borders. Wholesale CBDCs are promising but depend on counterparties also working with central banks, which the US has ruled out entirely. Leaning on that exclusively means cutting off Europe-US transactions. That is not something European business wants or can afford.

Deposit tokens have real advantages, sitting on bank balance sheets and connecting into existing central bank infrastructure. But every bank reserves slightly differently, carries a different balance sheet, a different rating. Not every deposit token has the same value or risk profile. A multinational without a single global banking relationship ends up managing multiple deposit tokens across multiple banks, potentially needing an FX desk just to pay for goods and services. That works inside a bank's own ecosystem. It does not scale globally. And as agentic payments arrive and programmability, data, and identity get layered onto payments, only organizations moving at private sector speed will keep pace with what AI and automation will demand.

That leaves stablecoins, e-money tokens, to handle the fast-developing global use cases where speed, flexibility, programmability, interoperability, and neutrality are the actual requirements.

Cross-border payments, treasury optimization, global logistics spanning multiple currencies, agentic payments. That is their home turf. Not because they can do everything, but because in these contexts nothing else does the job as well.

It is not either/or. It requires all the above.

Europe needs every tool available, both to strengthen the internal market and to compete globally.

The risk in the current political direction is the temptation to build walls around the EU and focus inward. That path leads somewhere nobody should want to go. The Taiwan Dollar is the sovereign currency of Taiwan, uncontested domestically, and essentially invisible in global commerce. Is that the sovereignty we are building toward?

The digital Euro is the right direction for retail payment sovereignty within Europe. But monetary sovereignty at street level is not what European citizens are losing sleep over, and a solution without an acknowledged problem will not find adoption. In a world where AI is compressing development cycles to weeks and months, anything that takes two or more years to reach usability is already a generation behind.

Europe does not need to choose between the digital Euro and stablecoins. It needs both, doing what each does best.

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