To the wry amusement of current and former officials, the European Parliament on 10 February roundly endorsed the digital euro in a vote that saw opponents of the project thwart their own blocking efforts. As geopolitical pressures undermine liberal-conservative resistance to Europe’s bolder remedies in ‘market failure’, officials are contemplating the opportunities for strategic autonomy that the tokenisation revolution presents.
The resulting – distinctly European – combination of public and private-sector initiatives, if enacted, might enable Europe to dominate wholesale tokenised finance sooner than the US. It may even help surmount structural obstacles to the euro as a reserve currency, which has trod water at 20% of global reserves since its inception.
A key plank of the developments is the European Central Bank’s provision later this year of a facility for Eurosystem banks to settle tokenised finance in public money. The Federal Reserve is avoiding even pseudonymous efforts in this area for now, wary of the political risk in appearing to work on a central bank digital currency, which in retail form is explicitly banned. Even parts of the Eurosystem have studiously avoided calling their Pontes initiative ‘wholesale CBDC’.
This development is key if finance at large is to tokenise. Market observers have told OMFIF they see no chance of private-money stablecoins, which in 2025 turned over $33tn, providing enough volume for the settlement of wholesale markets, where over-the-counter foreign exchange turnover alone is $9.6tn a day. Seasoned regulators are waiting to see if a future systemic stablecoin ‘de-pegging’ event causes chaos or vindicates reserve design.
Potential updates to MiCA
The European Commission, meanwhile, is contemplating revisions to the Markets in Crypto-Assets regulation. This could change the viability and utility of euro stablecoins, improving a regime that, as a result of national lobbying during its gestation, is currently prohibitive.
While far from being policy, officials are rumoured at least to be contemplating the nature of the yield ban, as well as reviewing the bank-centric reserve requirements, or potentially adding a MiCA annex that creates a ‘euro safe asset coin’ backed by euro area government debt.  Such a change would create a structure similar to dollar stablecoins under the Genius Act, albeit the reserve distribution presents Europe-specific challenges.
The result would be a ‘multi-moneyverse’, the ungainly term in policy circles to describe a digital ecosystem where several regulated versions of private money operate alongside public formats in the form of wholesale and retail CBDC.  At a stretch, this might include a yield-bearing euro stablecoin that public investors and reserve managers treat as a ‘safe asset’, otherwise in short supply compared to the dollar, and potentially changing the reserve status of the euro.  As it stands, reserve managers have no reason to hold stablecoins in any currency, and seem to be opting for gold as their dollar alternative rather than the euro.
Why are the changes under consideration, and what would they mean?  As part of the Savings and Investment Union initiative, the Commission is looking to consolidate financial market supervision that requires MiCA to drop its distribution through national regulators and move that competence to the European Securities and Markets Authority, at least for ‘significant cryptoasset service providers’.
There is also continued pressure, allegedly from the ECB, to restrict the ‘multi-issuance’ currently not forbidden by MiCA. This is in practice the ability for US-domiciled coins to run European businesses.  Commission officials, otherwise wary of reopening a process prone to deleterious member-state horse-trading, may take the opportunity to review other elements of the digital asset framework, originally conceived in 2019, including possibly its division of labour with the Markets in Financial Instruments Directive framework that governs traditional securities and their tokenised versions.
Rethinking the yield ban
The yield ban and the reserve requirements were installed to protect banks from deposit flight, though this notion remains contested, including by former ECB official, Ulrich Bindseil.  The US, which under the Genius Act also forbids yield, has been revisiting the topic via the Clarity Bill.
A yielding coin, which would replicate the benefits of holding a money market fund, is a dream of distributed ledger technology pioneers who see no reason that cash on chain shouldn’t pass interest on to holders for any time spent between investments in digital assets.
Banks suggest that cash would move out of current and deposit accounts, reducing their capacity to on-lend to the real economy, an effect amplified by fractional reserve banking.  Similarly, euro stablecoins under MiCA, if deemed systemic, are obliged to hold 60% in bank deposits.  Observers have suggested this renders the coins less safe and therefore less attractive than those directly backed by government debt, given the comparative riskiness of banks in financial crises, notwithstanding their central bank backing and supervision.
Stablecoins with European characteristics
Meanwhile, European banks are making a virtue of this necessity.   The Qivalis stablecoin consortium comprises 12 banks from the euro area.  Observers OMFIF spoke to query the poor website, lack of information and palpable activity, and worry about lawyerly joint-venture committees impeding dynamism.
However, the concept has several theoretical advantages.  It can hold the mandated reserves under the current version of MiCA – designed to route stablecoin deposits back into the banking system and, theoretically, into credit creation – within the group’s bank members, who will also shortly have access to digital public money from the ECB. This version of stablecoin design naturally expresses the bank-centric rather than capital markets-focused nature of European finance.
The resulting coin, whose issuers have recourse to the ECB and are subject since 2014 to a supervision and resolution architecture that seems to have weathered market stress, might offer vestiges of a ‘safe asset’.  ‘It’s my pet theory that this is what they are trying’, said Erwin Voloder, director of research and strategy at Blockchain for Europe.
Will it work?
Could a euro stablecoin, backed by government money market instruments rather than primarily bank deposits, work?  In addition to annexing or modifying MiCA’s reserve provisions, assuming a panoply of policy stakeholders is willing, the proportional allocation might need some thought to avoid the coin reserves crowding into, say, the safest or most liquid credits, which would take the market back to the subscale problem it is trying to solve, or potentially the worst ones to maximise yield income.
A mechanism like the one used to determine the country distribution of asset purchases by the ECB under its quantitative easing programmes might be one answer.  Another might be to enable the coin to pay yield, like a euro area MMF, which might give the coin operator a market impetus to blend safety and income to attract the widest mix of investors.   Alternatively, and more simply, tokenised MMFs could simply be given the regulatory and market privileges of cash.
Either way, there is theoretical scope for tokenised euros to pass the structural limits of the EU’s joint borrowing.  This might also help get past objections from better national credits about the dilution of their bond pricing power by weaker ones in such structures: net global demand for euro assets might increase if wholesale finance becomes DLT-based in this way. In theory this would apply downward market pressure on interest rates and create an ‘exorbitant privilege’ for Europe. Market dynamics issues remain, including a sufficient supply of money market collateral from euro area governments, and the distorting effect on government yield curves.
The dream scenario – available but not yet likely – is an enhanced European financial ecosystem, containing multiple versions of money with different types and levels of public backing. This would support tokenised bank finance and better direct capital markets participation from borrowers and lenders, while providing an upgraded euro for reserve managers and investors.
John Orchard is Chairman of OMFIF’s Digital Monetary Institute.
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