The European Union (EU) and the US have both taken steps to regulate digital currencies issued using distributed ledger technology (DLT). However, these jurisdictions have adopted drastically different approaches: the US favors private crypto innovation, while the EU prioritizes financial stability and monetary sovereignty.

According to a new study commissioned by the European Parliament’s Committee on Economic and Monetary Affairs, the US’s stance, reflected in the proposed Guiding and Establishing National Innovation for US Stablecoins (GENIUS Act), could further strengthen the global dominance of the US dollar, posing challenges to the EU economy.

By promoting stablecoin innovation in the private sector, US policy could undermine EU interests in trade and multilateral relations. It may also conflict with the EU’s policy goals for financial stability, consumer protection, monetary policy transmission, price stability, exchange rate flexibility, and anti-money laundering (AML) enforcement.

Risks related to currency denomination and cross-border circulation

Stablecoins pegged to a foreign currency, such as the US dollar, can create vulnerabilities for national monetary policy, the report warns. For example, EU citizens holding dollar-pegged stablecoins face exchange rate risk. If the dollar depreciates against the euro, their purchasing power declines, potentially harming consumption and investment in the EU.

Widespread use of foreign-pegged stablecoins can also undermine a country’s monetary autonomy. If US dollar-pegged stablecoins circulate widely within an economy, fluctuations in the dollar’s value relative to the domestic currency could undermine the effectiveness of domestic monetary policy or even pressure the central bank to peg its currency to the dollar. This would significantly constrain monetary sovereignty, and would effectively mimic a form of “digital dollarization”.

Furthermore, the increasing use of stablecoins pegged to the US dollar could weaken the international role of the euro, and reduce the euro’s attractiveness as a reserve asset. This would further entrench the dollar’s supremacy as a reserve currency.

Finally, if stablecoins not regulated within the EU circulate freely in nearby regions, they could circumvent EU rules. This raises risks of money laundering and also increases the exposure of EU households and companies to additionally exchange rate and financial stability risks.

Financial stability and monetary risks relating to stablecoins

The report also warns of significant financial stability and monetary risks posed by stablecoins. Because these digital currencies are backed by portfolios of assets that may be illiquid or volatile, stablecoins stablecoins can suffer from liquidity and maturity mismatches. This means that during times of financial stress, users may not be able to redeem their stablecoins at face value.

Stablecoin issuers also tend to chase higher yields while trying to maintain liquidity. This can lead them to shift large amounts of money across borders in response to changing interest rates, potentially disrupting national bond markets. For example, if US interest rates rise, euro-denominated stablecoin issuers might move funds from European bonds to US Treasury bills.

Finally, stablecoin issuers often keep deposits in traditional banks. If they suddenly withdraw large sums to pursue higher yields elsewhere, this could strain bank liquidity and heighten the risk of a systemic crisis.

Encouraging CBDCs and fast payments

To counter the so-called “US cryptomercantilism”, the report advises the European Central Bank (ECB) to closely monitor the development of dollar-pegged stablecoins in the EU and limit their circulation if needed.

The report also calls for the EU to promote both retail and wholesale central bank digital currencies (CBDCs) and fast payment systems as safe and efficient alternatives to stablecoins. At the same time, banks should be incentivized to offer faster, cheaper, and more user-friendly payment services, particularly for businesses, to reduce the appeal of private stablecoins in day-to-day transactions.

EU regulators should also promote multilateral payment systems based on cooperation and respect for states’ monetary autonomy. A robust payments infrastructure should facilitate international cooperation, including information sharing, standardized communication protocols, and harmonized regulatory frameworks. It should also enable CBDCs to interoperate with each other and with non-CBDC fast payment systems, supporting features such as currency conversion and capital flow management.

A surging stablecoin market

The global stablecoin market has expanded significantly in recent years. According to DeFiLlama, the number of active stablecoins has nearly doubled, rising from 136 at the start of 2024 to 259 in June 2025.

In June, the stablecoin market reached an all-time high of US$251 billion, according to CoinDesk’s Stablecoins and CBDCs Report.

Corporate enthusiasm has fueled much of this surge, with companies like Walmart, and Expedia exploring their own stablecoins to streamline global payments, reduce processing fees, and lessen reliance on traditional financial infrastructure, the Wall Street Journal reports. Companies owned by Wall Street giants such as JP Morgan Chase, Bank of America, Citigroup, and Wells Fargo are also considering launching a joint stablecoin.

Favorable regulatory developments have further boosted the sector. On June 27, the US Senate passed the GENIUS Act with strong bipartisan support in a 68-30 vote. The legislation aims to regulate the stablecoin market, creating a clearer framework for banks, companies and other entities to issue digital currencies. The US House of Representatives is expected to vote on the GENIUS Act this week.

Featured image: Edited by Fintech News Switzerland, based on image by sodawhiskey and Dang Pham via Freepik