The influence of stablecoins is growing rapidly – in terms of annual transaction volume, they have already surpassed traditional card networks such as Visa and Mastercard. At the same time, approximately 99 percent of the stablecoin market is pegged to the US dollar.
A recent White Paper by the Leibniz Institute for Financial Research SAFE concludes that this development poses risks to the area’s monetary sovereignty and the stability of the financial market. Europe must respond and make a strategic decision, say researchers Florian Heider (SAFE & Goethe University), Jan Pieter Krahnen (SAFE), Günter Franke (University of Konstanz), Tatiana Farina (SAFE), and Marti G. Subrahmanyam (New York University).
Stablecoins are transforming the architecture of financial markets
Stablecoins serve as a bridge between the crypto ecosystem and traditional financial markets. As their use expands, they are reshaping financial flows, influencing demand for government bonds, and potentially affecting monetary policy transmission.
“The impact of stablecoins on financial markets will continue to grow,” says Florian Heider, Scientific Director of SAFE. “The US supports stablecoins potentially to boost demand for its government bonds. This makes it essential for Europe to develop a secure and credible alternative that strengthens the role of the euro”. Without a European response, demand could continue to shift from euro-denominated assets toward US government securities, with implications for Europe’s monetary sovereignty.
While regulatory frameworks such as the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) in the US and the Markets in Crypto-Asset Regulation (MiCAR) in the European Union are being implemented, important gaps remain. Differences across jurisdictions create scope for regulatory arbitrage. These gaps also pose challenges for transparency of Anti-Money Laundering enforcement. “The largest issuer of stablecoins Tether, for example, is based in El Salvador and is therefore outside the regulatory perimeter of both US and EU frameworks,” explains economist Tatiana Farina.
The digital euro strengthens Europe's independence
The study outlines strategic scenarios for Europe. A private euro-denominated stablecoin ecosystem is beginning to emerge, but it remains limited in scale and would continue to rely on private intermediaries. Furthermore, it requires consistent supervision across jurisdictions the researchers note. A more robust solution for strengthening the euro is the introduction of the digital euro. “Central bank digital money is therefore the strongest anchor for monetary sovereignty in a digital financial system,” explains Farina, the policy advisor to the SAFE director.
As a public digital settlement instrument, the digital euro would provide an alternative, secure foundation for Europe’s financial system, ensuring monetary control and reducing reliance on foreign-currency denominated instruments. The authors argue – in line with SAFE Policy Letter No. 112 – that its implementation should be accelerated. The European Parliament is expected to adopt its position on the digital euro in the coming months.
Prof. Dr. Florian Heider
Scientific Director
