Piero Cipollone, a Director of the European Central Bank (ECB), has reiterated that Trump’s discussions about the global use of US dollar stablecoins are prompting EU politicians to see the necessity for a digital euro central bank digital currency (CBDC) as increasingly urgent. He made the statements during a Reuters interview after making similar comments last week. With respect to Mr Cipollone, that’s a false and flawed narrative.
With the digital euro legislation as a work in progress, there’s a risk of people feeling pressured to agree to it, even if they have concerns. We’re not saying there aren’t arguments in favor of a digital euro, just that monetary sovereignty for retail payments is not one of them. It’s also worth exploring the different motivations of the U.S. and Europe when it comes to stablecoins. The EU regulators appear to view them as a threat, the US government sees them as an opportunity.
“My sense is that there is an increased sense of urgency because of the position that has been taken by the new US Administration. The fact that the US President went in so strong on this idea of promoting worldwide US dollar-denominated stablecoins obviously is a signal,” Mr Cipollone told Reuters.
He continued: “So stablecoins can enter the payment space, for example, if they can compete with card schemes by reducing the price for the merchant. We have seen that important payment providers have already issued stablecoins, like PayPal, for example.”
Mr Cipollone is implying that US stablecoins present a threat to European monetary sovereignty for everyday payments.
A fact that appears to work in Mr Cipollone’s favor is that more than 99% of stablecoins are dollar based.
MiCA safeguards monetary sovereignty
However, Europe anticipated that this could be an issue when it introduced the MiCA regulations that govern crypto and stablecoins. In other words, MiCA prevents large dollar stablecoins from becoming too widely used in everyday payments. That stops them from competing directly with card schemes in the manner described by Mr Cipollone.
Let’s get specific. According to the latest statistics, there were 40.1 billion card transactions in the EU during the first half of 2024 amounting to €1.5 trillion. MiCA rules limit a foreign currency stablecoin to one million transactions a day, or the equivalent of €200 million daily. During a six month period, that would translate to 180 million transactions or €36 billion, which represent a proportion of card payments of 0.001% and 2.4% respectively.
Only two stablecoins have a market capitalization of more than $5 billion, and one of them is not MiCA compliant. Hence, for retail payments, US dollar stablecoins are not a threat to the euro.
Currently stablecoins are mainly used for crypto or person to person payments. They have a challenge with retail payments – unless the stablecoin payments are made via cards (incurring charges), most point of sale terminals don’t accept them directly.
There is one caveat. MiCA only caps everyday stablecoin payments, not investment related payments. But that’s not what the digital euro CBDC claims to target.
It’s notable that Mr Cipollone chose card payments. Because the argument the ECB uses for the digital euro is that Europe is overly dependent on Visa and Mastercard for payments, which is true.
Misaligned stablecoin incentives
While Europe has stablecoin legislation, central bankers are not so keen. By contrast, the Trump administration wants to promote stablecoins. Why the difference? It comes down to the structure of the Treasury markets.
Most high quality US stablecoins are backed by U.S. Treasuries, either directly or indirectly (via repo or reverse repo).
In a press conference earlier this week, Trump’s crypto czar David Sacks said,
“Stablecoins have the potential to ensure American dollar dominance internationally to increase the usage of the US dollar digitally as the world’s reserve currency, and in the process create potentially trillions of dollars of demand for US Treasuries, which could lower long-term interest rates.”
The United States has $36 trillion in Federal debt.
The European Union has €610 billion directly issued by the EU, with around €16 trillion fragmented over 27 national governments.
In 2020 when the proposed Libra stablecoin spurred central banks into action, the ECB concluded that if large stablecoins were primarily based on government debt, the stablecoin assets would dwarf EU money market funds and create financial stability risks.
Hence, MiCA requires small stablecoins to keep 30% of reserves at banks, rising to 60% for larger stablecoins. The deposits have to be spread over numerous banks. This is not to help the banking system, but out of financial stability concerns relating to government bonds.
The Trump administration views stablecoins as an opportunity. A kind of ideal public private partnership. The EU sees stablecoins as a risk. That appears to be another driver behind the ECB’s push for a digital euro CBDC. With a digital euro, it considers there’s little need for stablecoins for retail payments. It also portrays the CBDC as a public private partnership. There’s one big difference – banks won’t have a choice over participation.
