The Role of Stablecoins in Financial Sovereignty

The rapid rise of stablecoins has fundamentally altered the global financial landscape, with adjusted transaction volumes (excluding trading activity) exceeding $6 trillion over the last 12 months and market capitalization surpassing $225 billion. But what does this mean for national financial sovereignty? Our latest research paper examines this critical question through a comprehensive analysis of how stablecoins both enhance and challenge governmental control over monetary and financial systems.

Key Findings

Stablecoins present a double-edged sword for financial sovereignty. While they offer significant opportunities to modernize domestic currencies and enhance payment efficiency, they also pose risks including currency substitution, regulatory arbitrage, and strategic dependencies on foreign infrastructure.

Our analysis reveals that the impact varies dramatically based on where stablecoins are issued and which currency they track. We introduce a classification framework examining four categories:

• LILD: Locally-Issued, Locally-Denominated (highest sovereignty enhancement potential)
• LIFD: Locally-Issued, Foreign-Denominated
• FILD: Foreign-Issued, Locally-Denominated
• FIFD: Foreign-Issued, Foreign-Denominated (highest sovereignty risk)

The European Context

For Europe specifically, stablecoins represent both a strategic opportunity and an urgent challenge. The EU's Markets in Crypto-Assets Regulation (MiCAR) provides a robust framework for oversight, but questions remain about whether European stablecoin issuers can compete globally while maintaining regulatory compliance.

The stakes are high: Over 99% of stablecoins are currently USD-pegged, creating a form of "digital dollarization" that sidelines the euro in emerging digital markets. This trend could significantly impact the euro's international role and Europe's financial sovereignty.

Four Dimensions of Impact

Our research examines stablecoin impacts across four critical areas:

1. Monetary Sovereignty: How stablecoins affect currency control and monetary policy
2. Payments Sovereignty: Impact on payment infrastructure and transaction oversight
3. Regulatory Sovereignty: Challenges and opportunities for financial rule enforcement
4. Digital Sovereignty: Dependencies on foreign technology and data governance issues

Strategic Recommendations

The paper outlines five key considerations for policymakers:

1. Balanced Regulatory Approach: Refine MiCAR to balance oversight with innovation
2. Strategic Euro Stablecoin Development: Actively support European-issued euro stablecoins
3. Public-Private Collaboration: Leverage complementary strengths of both sectors
4. EU Infrastructure Investment: Reduce technological dependencies
5. International Coordination: Lead global regulatory efforts while protecting European interests

The Path Forward

Inaction is not an option. The research demonstrates that purely reactive measures risk ceding global influence to foreign-controlled digital currencies. However, a well-calibrated strategy can harness stablecoin innovation to actually reinforce sovereignty rather than undermine it.

For Europe, this means supporting the development of competitive euro-denominated stablecoins while maintaining robust regulatory oversight. The goal is not to resist digital innovation, but to ensure Europe shapes its evolution rather than being shaped by it.

Download the Full Paper: The Role of Stablecoins in Financial Sovereignty

This research was conducted by the Digital Euro Association's Working Group on Stablecoins, offering strategic insights for policymakers navigating the complex intersection of digital innovation and national financial control.