By Christoph Burger and Joachim Wuermeling

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Stablecoins, pegged to government-issued currencies or other assets, connect traditional financial systems with blockchain-based infrastructures. They offer more stability for digital transactions and new ways to move money across borders. As digital markets grow, stablecoins challenge existing financial assumptions and raise questions about regulation and the future role of digital money. This takes place amid expanding crypto markets and persistent frictions in cross-border payments.

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Growing interest in stablecoins

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The cryptocurrency market capitalization has surpassed USD 3.6 trillion. At the same time, traditional cross-border payments often incur fees of 2–7 percent and delays of 2–5 days, illustrating structural inefficiencies. These shortcomings help explain rising interest in stablecoins.

Traditional payment rails such as SWIFT, CHIPS, and ACH remain reliable but slow, costly, and not designed for programmable or automated settlement. This opens opportunities for digital currencies, including stablecoins, to improve settlement speed and lower costs in global payments. The choice of money on blockchains matters: cryptocurrency is decentralized but volatile; a central bank digital currency offers stability but may limit privacy; a stablecoin is pegged to fiat and provides a more predictable on-chain asset.

Early blockchain systems promised continuous, programmable settlement but struggled with scale and regulatory clarity. Laws and oversight remain uneven across jurisdictions. This uncertainty affects all digital money, including stablecoins, and shapes how they can operate across borders. Policymakers therefore face the task of integrating digital assets into existing frameworks while responding to demand for more efficient payments.

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Regulators must prevent misuse

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In this context, stablecoins emerge as a financial instrument that intersects with central bank mandates. They influence demand for fiat currency, create risks if issuers fail, and challenge monetary sovereignty. Central banks must consider whether stablecoins weaken demand for physical money, while regulators must mitigate run risk and prevent misuse. Financial institutions need to integrate stablecoins with existing systems while maintaining compliance. These concerns have prompted major jurisdictions to adopt very different regulatory approaches.

In the U.S., policymakers have chosen to prioritize private stablecoins over a public central bank digital currency (CBDC). The GENIUS Act, enacted in July 2025, requires stablecoin issuers to register with federal regulators, comply with anti–money laundering rules, and maintain one-to-one reserves in U.S. dollars or other low-risk assets. It addresses run risk and illicit finance through independent audits but does not provide federal deposit insurance, and enforcement against foreign issuers remains difficult. The U.S. model therefore reflects a preference for private-sector innovation within a constrained regulatory framework.

China's policy with the digital yuan

China represents the opposite end of the policy spectrum. It has banned cryptocurrency trading, issuance, and mining since 2021 and introduced strict licensing requirements for stablecoin issuers in the Greater China region.Offshore initiatives have been halted when they failed to meet regulatory standards. At the same time, China has expanded adoption of the digital yuan (e-CNY), which now has more than 260 million users. These policies reflect China’s aim to maintain control over digital payments and promote international use of the yuan.

Positioned between the U.S. dollar- and yuan-centered global digital currency models, Europe seeks a balance between technological advancement and risk management. The Markets in Crypto-Assets Regulation (MiCAR), adopted in 2023 and automatically applicable to all EU member states, classifies stablecoins, requires reserves and mandates EU-wide licenses. By 2025, 53 licenses have been issued, reflecting growing regulatory clarity. MiCAR also aims to reduce fragmentation as multiple stablecoins proliferate across issuers and jurisdictions.

The European Securities and Markets Authority promotes transparency and provides guidance to ensure issuer compliance. At the same time, the Bank for International Settlements warns that stablecoins can facilitate money laundering or sanctions evasion and urges refinements to MiCAR to address multi-issuer stablecoins issued across multiple jurisdictions.

ECB plans introduction of the digital euro from 2029

MiCAR does not explicitly regulate jointly issued stablecoins between EU and third-country entities, highlighting an area for future development. Scaling stablecoins for small and medium-sized enterprises remains a challenge, even as adoption grows among larger companies. In parallel, the European Central Bank (ECB) plans to introduce a digital euro starting in 2029.

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In the initial phase, it will not function as a blockchain-based token but will rely on traditional infrastructure. The ECB is also developing a “trigger solution” that links blockchain transactions to cash transfers in central bank systems, enabling smart-contract-based settlement. Banks see potential in tokenized deposits and continuous settlement but must integrate blockchain interfaces with legacy systems. Companies increasingly adopt stablecoins, partly because regulatory clarity improves confidence in their stability and transparency, although the proliferation of different stablecoins and sustainability concerns related to blockchain energy use remain significant issues.

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Europe’s dual approach, supporting stablecoins under MiCAR while developing a digital euro, positions it between the U.S. innovation-led model and China’s sovereignty-focused model.

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Stablecoins expose inefficiencies in conventional financial systems and have triggered varied responses among major geopolitical actors. The United States encourages private-sector innovation, China emphasizes state-controlled digital money, and Europe seeks a balanced, rules-based middle ground. Europe’s ability to align innovation, competition, and monetary sovereignty will determine its influence in shaping the emerging global digital currency landscape.

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Editor's notes:

Stablecoins are digital cryptocurrencies that should be stable in value

‍Fiat money: “Normal” government money with no tangible value of its own, e.g. euro or US dollar

CBDC (Central Bank Digital Currency) is the central bank digital currency

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Authors:

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‍Christoph Burger is a senior lecturer at ESMT Berlin and has been faculty lead of the MBA programs since September 2025. Previously, he worked in industry (Otto Versand, Bertelsmann Buch AG), management consulting (Arthur D. Little), and as an independent consultant in the field of private equity financing for SMEs. His areas of expertise include energy, innovation, blockchain, decision-making, and negotiation.

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Joachim Wuermeling, Executive in Residence at the Institute for Deep TechInnovation at ESMT Berlin and senior advisor to the financial regulatory teamat AO Shearman. Former State Secretary at the German Federal Ministryfor Economic Affairs and Technology and Member of the European Parliament.

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