Three sides of the same stablecoin
Jurisdictional approaches to currency influence have become central to geopolitical strategy
A key point of contention in financial policy in 2025 has been the relationship between stablecoins and central bank digital currencies. So far, jurisdictional decisions to support one instrument versus the other have been in large part informed by cultural and political beliefs over whether the public sector is a steward or a barrier to innovation. All jurisdictional choices continue to be influenced by questions regarding the dollar’s longer-term prospect as the global reserve currency.
These forces are visible across the strategies pursued by some of the most relevant centres of geopolitical power: the US, China and the European Union. If we consider, for example, the US’s strategy, with the passage of the Genius Act, the US administration has made it clear that it believes the future landscape should be dominated by private-led innovation. Moreover, it sees stablecoins as a core plank of its twofold strategy of maintaining the dollar’s global standing on the future rails of finance and of lowering its borrowing costs by boosting demand for US Treasuries – which stablecoins hold in their reserves.
Conversely, China had hitherto focused entirely on an e-CNY and disregarded stablecoins as alternatives – demonstrating its preference for state-led control of both payment instruments and their underlying rails. The pivot this year in its strategy towards stablecoins, however, reflects an understanding that what’s at stake is more than an upgrade to its domestic retail payments. The strategy might prove a defining geopolitical move to conquer the future of the cross-border apparatus, which it is keen to see the renminbi play a more dominant role in.
Against these opposing choices, Europe’s approach comes out more balanced. From the outset, its overall strategy has reflected an acknowledgement that the current mosaic of ‘money-like instruments’ works well. It has made progress exploring the utility of each (tokenised central bank reserves, wholesale CBDCs, a retail CBDC and stablecoins) in a future landscape.
The Markets in Crypto-Assets Regulation framework, for example, was the first attempt to chart the path for broad-scale adoption of distributed ledger technology-based finance, providing the conditions for both local and global stablecoin issuers to come under its regulatory perimeter. Alongside this, Europe has made considerable progress on both pilots to develop a wholesale CBDC and design a digital euro.
The euro’s global appeal as a major currency against the dollar has also been a central consideration in discussions about instrument relevance and the balance to be struck between public sector versus private sector led initiatives. It is also a source of continuing friction between the European Commission and the European Central Bank. Despite concerns that the current regime leaves loops that might help entrench the dollar’s dominance even further, the architects of MiCA actually saw the creation of a local industry as a precondition for the euro’s continued appeal – domestically and internationally.
Why Europe’s hybrid approach works
Europe’s efforts to develop the conditions for wholesale DLT settlement have been arguably the most comprehensive to date. Its wholesale CBDC proofs of concept and DLT pilot have given policy-makers and industry participants valuable insights regarding what is needed from an infrastructure, regulatory and legal standpoint for tokenisation to succeed at scale.
When it comes to scaling DLT-based finance, having an on-chain, settlement asset or ‘cash-leg’ instrument has emerged as a critical necessity. Stablecoins can perform this function, but in the hierarchy of ‘money-like’ instruments, central banks prefer tokenised central bank reserves. To this end, the ECB has approved a two-pronged approach towards developing a wholesale CBDC solution: Project Pontes will connect DLT platforms to Target (or support a ‘synchronised’ model), and Project Appia will provide the foundations for an integrated DLT ecosystem. These efforts should be further enhanced should potential changes be made permanent to the DLT Pilot Regime, helping scale tokenisation across the single market.
On the other hand, the digital euro could be seen as a domestic digital payments technology and instrument, with its design reflecting the thinking behind various ECB payments initiatives. Its major benefit would be to connect the banking systems of different EU member states (which despite the Single Euro Payments Area and various EU-level ‘unions,’ remain fragmented), in addition to providing a direct public instrument.
As it stands, the digital euro might struggle to take off, both because it is unclear how it will compete with other methods in the eyes of consumers and with the private sector from an infrastructure point of view. But these efforts will undoubtedly inform broader policy choices about consumer behaviour, credit disintermediation in the digital realm and systemic frictions. At time of writing, the Financial Times reported that the digital euro’s fundamental design choice might still be under review, though these claims are yet to be officially confirmed.
In regards to private issuance, beyond Circle’s issuance of a euro-backed stablecoin (EURC), EU member state supervisory authorities have started to approve other EU-based, euro-backed stablecoins under MiCA’s e-money token framework (such as Société Générale’s SORGE and Membrane Finance’s EUROe), demonstrating that MiCA is gradually levelling the field in this competitive global landscape.
The path ahead
Despite concerns that tensions between the ECB and the Commission are getting in the way of Europe advancing its priorities and protecting its competitive edge, the reality is Europe has already laid the necessary foundations for a successful stablecoin strategy.
The three-fold objectives of scaling Europe’s digital capital markets through the Savings and Investment Union, broadening the scope and ambition of the DLT pilot and swiftly approving compliant euro-backed EMT issuers should be seen as more directly relevant tools to counter the potential dollarisation of the EU single market than the development of either a retail or wholesale digital euro/CBDC.
But the ECB’s work on CBDCs should be seen as complementary to, rather than in competition with, the Commission’s strategy of supporting private-led innovation. Together, these moves build on principles of instrument diversity and regulatory predictability which today serve very specific needs – including preventing disorderly banking disintermediation and protecting the anchoring role that central bank money plays in the economy.
This approach differs substantially from that taken by the US and China. The US’ indisputable share of the stablecoin market gives its currency a competitive advantage in the short term. But as the Atlantic Council’s analysis notes, pre-emptively banning the Federal Reserve System’s involvement in the future landscape could have unintended consequences in relation to the US’ ability to set monetary policy, coordinate sanctions and set standards internationally. In contrast, China’s stablecoin market is unlikely to take off in a landscape of fierce domestic competition in retail payments. Furthermore, yuan-backed stablecoins’ appeal in cross-border settings will inevitably be tied to trust in the underlying currency, the stability of its market and credibility of the government. These are all built on shaky foundations in China’s case.
Institutions take time to build, because they require trust as a result of collective and acquired experience. Trust in the institution of money depends on a carefully balanced relationship between the private and public sectors. Europe’s strategy of upgrading, rather than overhauling, the money landscape protects this principle.
Isadora Arredondo is Global Policy Director at Hedera.
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