Europe leapt boldly to drive financial innovation, but ended up falling short. No other jurisdiction addressed DLT (Distributed Ledger Technology) as financial market infrastructure as early and purposefully as we Europeans did. But cracks began to show with the establishment of the DLT pilot regime, and later the Markets in Crypto Assets (MiCA) Regulation. European legislators set the framework far too narrowly, preventing a vibrant market from developing. The reason for this, it should be noted, was that regulators and the European Central Bank wanted to impose limits on stablecoins to protect the euro.

The plan has backfired. While the ECB must stand by the side as the digital retail euro project is sunk in Brussels, the EU stablecoin market remains anaemic. For the past two years, Europe has been treading water, according to frustrated sources among the European banks that have joined forces to independently develop a euro-based stablecoin and DLT infrastructure to a relevant scale. By creating an EU alternative to the US-dominated stablecoin markets, they aim to contribute to autonomy in payments.

Nine banks have now joined forces to launch a MiCA compliant euro denominated stablecoin; ING, Banca Sella, KBC, Danske Bank, DekaBank, UniCredit, SEB, CaixaBank and Raiffeisen Bank International. This digital payment instrument aims to become a European payment standard in the digital ecosystem.

The nine founding banks represent a solid cross-section of the European banking landscape, and given their industrial scale, they are capable of achieving market relevance on their own. Their goal is to address both securities settlement and ordinary retail payments. However, it is clear that the banks primarily want to advance with DLT-based securities settlement, since stablecoins are ultimately needed to represent the cash side in the on-chain transfer of assets.

This requires a large number of stablecoins, which in turn are backed by euro government bonds. This financial cycle has now also become geopolitically relevant. Currently, the global stablecoin volume of 295 billion dollars is 99.9% backed by US government bonds, reinforcing the dollar’s dominance in the financial system. If Europe wants to counter this, it needs a euro-based stablecoin backed by euro government bonds.

It is to be hoped that more banks from the eurozone will join the initiative. Given what is at stake, all Europeans should be keen to strengthen the project’s impact.