Dollar stablecoins versus a retail digital euro? They are different – not rivals

The history of Central Bank Digital Currencies (CBDCs) is, in large part, a history of institutional anxiety.

When Meta announced its Libra/Diem project in 2019, central banks worldwide were confronted with an uncomfortable question: could a private technology corporation issue money at global scale and thereby erode their monopoly over monetary control?

The response was swift.

CBDC projects proliferated across jurisdictions, from the Bahamas to Sweden, from China to the euro area.

The momentum dissipated to some extent when Meta abandoned the project, although some central banks, such as the European Central Bank, accelerated their efforts.

What began as a defensive reflex had become a genuine policy agenda.

In the euro area, two rationales took shape.

The first is structural: as cash usage declines, central bank money risks becoming increasingly marginal in the daily lives of citizens, undermining the monetary anchor that underpins financial stability.

The second is strategic: in some parts of the payments value chain, the EU remains reliant on non-European infrastructure, potentially undermining Europe’s autonomy over its own financial plumbing.

Both rationales were well established before Washington’s new policies entered the picture.

In January 2025, president Donald Trump signed an executive order prohibiting the Federal Reserve from issuing a retail CBDC and directing federal agencies to promote dollar-backed stablecoins globally.

In July 2025, Congress passed the GENIUS Act, establishing the first comprehensive federal framework for payment stablecoins.

The GENIUS Act requires stablecoin issuers to hold short-dated Treasury securities as reserves (specifically, Treasury bills, notes or bonds with a remaining maturity of 93 days or less) creating a structural link between stablecoin market growth and demand for US sovereign debt.

Some observers have interpreted this as deliberate fiscal engineering, i.e. a mechanism to secure captive buyers for short-term government paper.

That reading, while politically compelling, requires qualification.

First, the EU’s own framework for the closest equivalent instrument — electronic money tokens (EMTs) under MiCA — imposes a structurally similar requirement: at least 30 percent of reserves must be held in segregated accounts with credit institutions, with the remainder invested in low-risk, highly liquid instruments, which in practice means short-dated sovereign debt.

Prudential logic, not fiscal opportunism, underlies both frameworks. 

Second, the US has long relied heavily on short-term financing: treasury bills have historically constituted a substantial share of federal debt issuance, reflecting both market depth and the structural demand for high-quality liquid assets from money market funds, foreign central banks, and institutional investors.

The GENIUS Act’s reserve requirement fits naturally within this existing landscape rather than reshaping it. 

That said, as the stablecoin market grows and with traditional purchasers such as China and Japan reducing their US treasury exposure, stablecoin issuers represent a new and structurally captive source of demand for short-maturity instruments.

US treasury secretary Scott Bessent has been explicit about the appeal: a thriving stablecoin ecosystem would drive private-sector demand for the very assets used to back those stablecoins.

Whether this translates into a net reduction in borrowing costs is genuinely contested: substitutive effects, whereby funds flow from existing treasury-holding instruments into stablecoins rather than representing new demand, may offset much of the additive impact.

Notwithstanding the qualifications set out above, from Brussels and Frankfurt a further concern has emerged: given that stablecoin reserves must be backed by US short-term sovereign debt, widespread adoption of dollar stablecoins in Europe would effectively channel European savings into the financing of the US Treasury, compounding the broader worry that dollar stablecoins could substitute for the euro in payments and complicate monetary policy transmission.

ECB concern

European Central Bank board members have been vocal: Piero Cipollone cited the Trump executive order as among the reasons the digital euro had become necessary, whilst Philip Lane argued that a retail CBDC was “imperative” as a tool to limit the dominance of foreign digital currencies.

This framing, while understandable in political terms, conflates two forms of digital money that serve fundamentally different economic functions and comparing them risks drawing the wrong policy conclusions.

Dollar-denominated stablecoins, which today account for approximately 99 percent of the global stablecoin market, are instruments designed above all for institutional use.

Their primary value proposition is frictionless, round-the-clock settlement across borders and across blockchain-based financial infrastructure.

They underpin crypto-asset trading, collateralise derivatives transactions, and increasingly facilitate trade finance and treasury cash management for large multinationals.

They are not, in any meaningful sense, a consumer product targeted at European households.

The genuine demand for dollar stablecoins as a store of value by retail investors comes from a very different population: households in countries with volatile currencies, inflationary monetary policy, or capital controls, for whom a digital dollar represents meaningful monetary stability.

The eurozone citizen is not that person.

One complication merits acknowledgement. The GENIUS Act prohibits stablecoin issuers from paying interest directly to holders, a provision designed to keep payment stablecoins clearly distinct from deposit substitutes.

Monitor with care

However, the statute is silent on whether third-party exchanges may offer yield-bearing products linked to stablecoin holdings.

This ambiguity is currently the subject of intense regulatory debate, with over 40 US banking associations urging Congress to close the loophole.

Were it to remain open, stablecoins could begin to compete with bank deposits on yield grounds — whilst offering none of the protections that deposit guarantee schemes provide — potentially drawing retail savings away from the banking system, including in European markets.

This is precisely why regulators on both sides of the Atlantic should monitor the GENIUS Act’s implementation with care.

Anyhow, the more analytically-coherent comparison is not between dollar stablecoins and the retail digital euro, but between dollar stablecoins and a wholesale CBDC — central bank digital money designed for settlement between financial institutions.

The ECB has recognised this.

Its decision in February 2025 to expand its distributed-ledger settlement initiative, and its development of wholesale CBDC infrastructure through projects such as Pontes and Appia, reflects a clearer-eyed understanding of where the real competitive pressure lies. A wholesale CBDC ensures that Europe remains relevant in the evolving market for tokenised securities and smart contract-based payment flows.

The retail digital euro, by contrast, addresses a different set of problems, mainly the preservation of central bank money in the daily economy and financial inclusion.

These are legitimate objectives on their own terms. But they should not be dressed up as a response to dollar stablecoins, because they are not one.

Dollar stablecoins and the retail digital euro are not rivals.

Framing them as such for geopolitical effect risks confusing citizens and obscuring a more important conversation: understanding what different forms of digital money actually are and what functions they serve.

That conversation should centre on ensuring that the GENIUS Act’s yield loophole is closed, that wholesale digital settlement infrastructure receives the attention it deserves, and that Europeans are not misled into believing that the retail digital euro is their shield against dollarisation.

It is not — nor does it need to be.