US Stablecoins and Digital Euro Pose Dual Threat to European Bank Deposits

• The U.S. views stablecoins as a way to strengthen dollar dominance and boost demand for Treasuries.
• On the other hand, the EU sees them as a risk to financial stability and this divergence is pushing the ECB to accelerate digital euro legislation.
• Global moves to reduce dependence on the U.S. dollar, including a possible BRICS currency, add urgency to the digital euro.

The U.S. and Europe are diverging on digital currencies. While President Trump supports USD-backed stablecoins to strengthen dollar dominance, the ECB sees them as a risk to EU financial stability.

In response, the ECB is pushing for a digital euro, but both stablecoins and a CBDC could drain deposits from European banks.

Furthermore, global de-dollarization efforts, including a potential BRICS currency, add urgency to the ECB’s plans.

Trump Policies May Push Digital Euro Plan

In an interview with Reuters, European Central Bank member Piero Cipollone said that Trump’s plans to support USD-pegged stablecoins will speed up legislative backing for the digital euro.

However, the U.S. and Europe have contrasting views on stablecoins. While European regulators see stablecoins, particularly those backed by government debt, as a risk to financial stability, the Trump administration views them as a potential opportunity.

U.S. stablecoins are seen as a way to promote the U.S. dollar’s dominance globally and increase demand for U.S. Treasuries, potentially lowering long-term interest rates.

In contrast, the ECB is concerned that U.S.-backed stablecoins could destabilize the EU’s financial system. In response, the ECB is pushing forward with plans for a digital euro, aiming to offer an alternative to dollar-based stablecoins.

The ECB fears that widespread use of U.S. stablecoins for payments could siphon deposits away from European banks. Europe’s regulations on stablecoins aim to limit exposure to government bonds, while the U.S. views stablecoins as a beneficial public-private partnership.

This divergence in approach may accelerate the EU’s efforts to launch a digital euro, with expectations of faster progress in the coming months.

Risks For European Bank Deposits

European banks may face a growing challenge as U.S. dollar-backed stablecoins and the ECB’s proposed digital euro threaten to pull deposits away from traditional banking institutions.

Stablecoins, particularly those backed by U.S. Treasuries, are gaining traction as a payment method and investment vehicle, allowing users to move funds outside the European banking system.

The ECB warned that if eurozone residents increasingly adopt U.S. stablecoins, deposits could shift to the U.S., reducing European banks’ liquidity and lending capacity.

At the same time, the ECB’s push for a digital euro poses another risk. While intended to provide a State-backed alternative to private stablecoins, the digital euro could also drain deposits from commercial banks.

To mitigate this, the ECB plans to cap digital euro holdings at a few thousand euros and ensure they remain non-interest-bearing.

Despite these measures, European banks remain concerned about losing deposits on both fronts—either to U.S. stablecoins that operate outside EU regulation or to a digital euro that shifts control of money away from traditional lenders.

De-Dollarization Effects