Dolenc warns on stablecoin risks, champions digital euro
Primož Dolenc, Acting Governor of Banka Slovenije, highlighted the rapid growth and dollar dominance of stablecoins, posing challenges to monetary sovereignty. Speaking at a BIS event, he advocated for the digital euro and Eurosystem DLT projects as anchors of stability.
Dollar dominance in tokenized ecosystems
The market capitalisation of stablecoins has surged from 170 billion US dollars at the end of 2024 to almost 315 billion, with the vast majority denominated in US dollars.
This dominance, particularly by coins like Tether and USDC, raises questions of monetary sovereignty.
While Europe's Markets in Crypto-Assets Regulation (MiCAR) provides a comprehensive framework for sound, euro-denominated stablecoins, the market continues to gravitate towards the dollar.
Dolenc noted that a significant portion of the crypto ecosystem, such as decentralised finance (DeFi), remains outside regulatory oversight, posing further challenges for security and transparency.
He stressed the principle of 'unity of money', ensuring all forms of euro are mutually convertible without friction.
Eurosystem's digital counter-strategy
Privately issued stablecoins inherently carry fragmentation risks, even with robust regulation.
If they become dominant, rules could be set by issuers rather than central banks.
In response, the Eurosystem is developing its own solutions beyond stablecoins, primarily the digital euro, designed to be available to all, secure, and impartial, serving as a public money anchor in the digital age.
Experiments like Project PONTES aim to connect DLT platforms with traditional infrastructure like TARGET for large-value transactions, enabling market innovation while maintaining central bank money settlement.
The long-term APPIA project explores direct issuance of tokenised digital reserves by central banks for rapid, secure settlement of complex financial operations, including cross-border payments and securities settlement.
Slovenia has already pioneered by issuing government bonds on a DLT basis in 2024, signaling readiness for digital capital markets and informing future European policy.
Innovation needs public anchor
The tokenisation of money represents an ongoing journey, currently shaped by foreign actors and private solutions.
However, the Eurosystem's initiatives like PONTES and APPIA, alongside pioneering national efforts, provide the necessary ingredients for the European Union to assume a leading role.
This path ensures that innovation in financial services is balanced with the imperative to protect people's savings and maintain a stable, resilient financial system.
The future of the monetary system hinges on a coordinated, critical debate among all stakeholders.