Are trade wars good for tech after all? Circle Internet Group Inc., a major issuer of digital currencies designed to replicate the US dollar, has tripled in value since going public and is worth $23.6 billion (or 150 times last year’s earnings). Call it Zuckerberg’s revenge: Six years after Meta Platforms Inc. sparked a global backlash with its own plans for a digital dollar, the $250 billion stablecoin market is booming and has the backing of Donald Trump, Congress and investors.
Europeans are watching the froth with concern. Even as the Louvre Museum this week hosted a crypto conference full of buzz at the prospect of more traditional financial institutions like Goldman Sachs Group Inc. or Societe Generale SA dipping their toe in this market, officials fear virtual currencies are a serious financial threat for the continent and an extension of Trump’s ambitions of bringing global trade to heel. And they may be right to worry.
While crypto’s roots are libertarian and anti-state, stablecoins could serve to entrench the existing tech and monetary order dominated by the US, as 95% of them are dollar-denominated. The euro commands less than 1%, despite accounting for 20% of global reserves, according to specialist publication Euro Stable Watch. Circle’s success may exacerbate this, perhaps by encouraging Big Tech and Wall Street to join in. Hence why Bank of France Governor Francois Villeroy de Galhau warned this week of the risk of death by stablecoin — literally “de-Europeanization” — for a continent that’s heavily dependent on the US for a host of services, from social media to Microsoft Corp. cloud computing to payments via Visa Inc. and Mastercard Inc.
This isn’t just a virtual-world thing, like Robux or loyalty points. Regulated stablecoins are backed by real-world liquid assets, as proposed by the US GENIUS Act. This gives issuers like Circle a revenue stream and it also gives the US a source of demand for its debt: US Treasury Secretary Scott Bessent has repeatedly cited speculation that stablecoins could create up to $2 trillion of demand in the next few years for Treasuries. Bond market participants are even on watch for signs the Treasury will start to skew its debt sales toward the shorter-dated securities that these tokens will need. A 2023 paper by the Bank of France found that an increase in circulating stablecoins increased issuance of dollar-denominated commercial paper.
Putting these digital bricks end to end, we can see how they could tip the scales in a trade war. Right now, stablecoins are essentially used for crypto trading. But imagine if Amazon.com Inc. were to come up with irresistible shopping discounts for customers paying in AmazonBucks? Multiply an annual shopping basket of $2,700 by 350 million Europeans and you start to get to serious money — money which would indirectly contribute to keeping demand for dollar debt afloat in a more uncertain world. Economist Eric Monnet recently described it as “crypto-mercantilism”: The 21st-century version of the dollar’s exorbitant privilege, used as a counterweight to the investment capital fleeing Trump’s policies.
European officials aren’t defenseless, of course. There are a few options available to try to stem the tide. One is regulation: While the European Union was quick to put up guardrails around the crypto market, it’s been superseded by the GENIUS Act. The ECB could fine-tune rules to encourage more European institutions like banks or fintech startups to issue more euro stablecoins, while also ensuring that there are sufficient safeguards to reduce the risk of digital bank runs (including outright bans on those that don’t play by the rules). Another is the digital euro, which is currently envisioned as a kind of sovereign European payment tool of last resort, but which needs more changes to get buy-in from banks fearful of competition for deposits.
And while the supply of new financial products is going to be a key part of the tectonic geopolitical shifts afoot, Europe shouldn’t lose sight of the analog characteristics that make up monetary power. Marc Schwartz, head of the Paris Mint and co-author of a new book on currency wars, says there’s an opportunity for the euro in a world where the dollar is still dominant but vulnerable. Increasing the euro’s global influence and reach would get a big boost from closer integration of its member countries, which is a political and not a technological question. It’s a bit rich to warn of de-Europeanization when the euro area is struggling to let banks merge and dragging its feet on capital-markets integration.
The stablecoin race has started, but it’s not too late to square this circle.
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