Digital Currency Crossroads: EU vs. US

The dynamic between government-backed digital currencies (CBDCs) and stablecoins is set to be a major topic this year. The US is now favoring stablecoins supported by the dollar while pushing back against CBDCs. Europe, on the other hand, is championing CBDCs—like the digital euro and pound—as pillars of financial security, viewing cryptocurrencies and stablecoins as potential risks. However, officials on both sides share a common understanding: both CBDCs and stablecoins hold the potential to reshape the global influence of the US dollar.

It wasn’t unexpected when President Trump, at the start of his second term, issued an
executive order
prioritizing stablecoins as the preferred method for protecting the US dollar’s international standing and bolstering financial stability. The directive also highlighted possible financial dangers from CBDCs. Conversely, the
meeting minutes
from the European Central Bank’s December 2024 monetary policy meeting suggested that crypto assets might destabilize the eurozone’s financial system.

The 2025 Reserve Currency Policy: Four Key Considerations

Legislation: Despite differences in strategy, authorities in both the EU and US face the same challenge: implementing CBDCs requires new laws. Lawmakers in Brussels, London, and Washington aren’t rushing to pass these measures.
The European Parliament has not yet scheduled a vote on the digital euro proposal
submitted by the European Commission, even with
the ECB’s urging. Similarly, the UK Parliament hasn’t advanced a digital pound initiative.

The Republican-controlled Congress and the White House are against CBDCs, making US CBDC legislation unlikely in the near term. The Federal Reserve concurs. Chairman Jerome Powell yesterday
told Congress
he won’t suggest or pursue a digital dollar for the rest of his term at the central bank, which ends in spring 2026. All relevant US policymakers (White House, Congressional leaders, regulators, central bank) now oppose a domestic CBDC, shifting their attention to creating legal and regulatory support for stablecoins.

House Financial Services Committee Chairman Hill’s 2025
CNBC interview
confirms that key US lawmakers believe broader stablecoin adoption could help “extend the reserve currency status” of the US dollar globally. Additionally,
Federal Reserve Governor Christopher Waller
now openly supports stablecoins “because they are likely to propagate the dollar’s status as a reserve currency, though they need a clear set of rules and regulations.”
Senate Banking Committee Chairman Tim Scott
announced in January plans for a stablecoin “regulatory framework that…will promote consumer choice, education, and protection and ensure compliance with any appropriate Bank Secrecy Act requirements.” Whether dollar-backed stablecoins can strengthen the dollar’s role in global payments remains to be seen.

Legislative structure will greatly influence the growth of domestic and international stablecoin markets, which will affect US sovereign bond markets. For example, regulations could require stablecoin issuers to hold US Treasury bonds to back their stablecoins, ensuring liquidity and demand for US dollar-denominated debt. Other proposals for a federal crypto asset reserve could further boost crypto market liquidity.

Geopolitics: President Trump campaigned on a promise to protect the dollar’s global role. His
pledges included using tariffs
to penalize countries undermining the dollar, alongside strict sanctions enforcement. The Trump administration isn’t alone in worrying about certain CBDC uses. There’s growing global concern that non-US dollar CBDC networks could be used to bypass Western sanctions. Given this, in October 2024, the Bank for International Settlements
withdrew from the wholesale CBDC mBridge project,
whose members included central banks from China, Hong Kong, Thailand, the United Arab Emirates, and Saudi Arabia. The BIS General Manager restated that “…the BIS does not operate with any countries, nor can its products be used by any countries that are subject to sanctions…we need to be observant of sanctions and whatever products we put together should not be a conduit to violate sanctions.” Moreover, Russia has advocated for a
multipolar global financial system
with a separate non-dollar clearing and settlement mechanism.

Distributed Free Markets: Stablecoins currently represent a small portion of financial activity. Crypto itself is still minor compared to US capital markets. The
estimated stablecoin market size
is $227 billion in market capitalization, versus $6.22 trillion for US capital markets and
$3.39 trillion for global cryptocurrency markets. If stablecoins maintain their current double-digit growth, they could become a significant part of the crypto market or even capital markets. Importantly, most stablecoins are tied to the US dollar.

Rapid adoption rates and quick transactions in stablecoin markets suggest that today’s decisions about stablecoins and CBDCs may amplify shifts in reserve currency markets. Dramatic shifts in reserve currency status have historically been uncommon. Threats to dollar dominance are more likely to come from alternative currencies gradually reducing the dollar’s role. While the US dollar leads with 49.2 percent of international payment messaging through SWIFT, its share of global FX reserves has dropped from 71 percent in 2001 to 54.8 percent now. Decreased dollar demand has increased demand for non-traditional currencies, gold, and pairs of local currencies, instead of traditional reserve currencies.

In this context, individual user choices can significantly affect global reserve currency status. Broad adoption of US dollar-backed stablecoins might even reverse the de-dollarization trend. The policy choices made in 2025 will greatly affect the evolution of stablecoin and dollar markets.

European Crypto Rules: EU officials are promoting the digital euro as a way to achieve strategic and economic independence from the US dollar. For retail, they are competing with local payments processed by US credit card companies. Globally, they encourage the euro’s use as an international transaction currency. Secondary uses include using blockchain technology to create “tokenized” (euro-denominated) deposits, reinforcing commercial banks within the payment system. European policymakers have also started experimenting with tokenized securities. Slovenia was the first eurozone country to issue a
tokenized euro area sovereign bond.
In December, the Bank of France became
the first
eurozone central bank to complete secondary market transactions for sovereign fixed income and equity using an unnamed digital currency on a blockchain.

However, if many people in a country hold wealth in a foreign currency stablecoin, the
competitive landscape,
if not the survival of other reserve currencies, requires a digital alternative. This situation also encourages jurisdictions to make interoperability difficult with non-euro stablecoins while creating economic obstacles for local users who choose US dollar-backed stablecoins—basically protecting their economic and monetary independence.

Some view the new EU crypto regulations—the Markets in Crypto Assets (MiCA), especially the
requirement for a 1:1 ratio of liquid reserves for stablecoins—as a strategic tool to raise barriers for non-EU issuers of US dollar stablecoins. MiCA imposes bank-like regulatory obligations on crypto asset issuers and intermediaries. We examined that framework and its interaction with US crypto asset policy in
our January 28, 2025 Econographics essay. This framework could provide European regulators time and means to defend themselves by regulating local stablecoin markets to help a digital euro or euro-denominated stablecoins gain traction. Market data will be the measure of policy effectiveness.

Barbara Matthews is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center. She is also Founder and CEO of BCMstrategy, inc., a company that generates AI training data and signals regarding public policy.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for the New South; a former senior official at the Institute of International Finance and International Monetary Fund.

Further reading

Thu, Jan 23, 2025

What is next for crypto regulation in the US?

Econographics
By
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What does success on the regulatory front actually look like? What does it mean for the rest of the world? We dive into the dozen bills under consideration in Congress and zoom in on the three big themes for crypto regulation in 2025.