Europe knows that it will soon have to adopt the digital euro. To become a global digital leader and avoid reliance on American and Asian technology infrastructure, European decision makers and regulators need to make progressive decisions.

Stablecoins are a central obstacle to digital economic thinking in Europe. Stablecoins can be issued privately and have the potential to be accepted worldwide and incorporated into the system, disrupting established financial systems. As a result, today’s political discussions about stablecoins are dominated by concerns about financial stability and an orderly monetary policy.

Connected: Stablecoins pose a new dilemma for regulators as mass adoption emerges

Current management plans restrict innovation and favor big banks and big tech big

The European Union’s Regulation of Cryptocurrency Asset Markets (MiCA) aims to be a comprehensive regulatory framework for crypto assets, including stablecoins. Its current scope changes as the European Parliament and Member State governments grapple with draft texts that offer legal certainty, possibly at the expense of considerable complexity. As a result, stablecoins issuance in Europe will likely require a banking license, which will favor established (and not necessarily overly innovative) financial players. In fact, the entire regulatory burden of MiCA can be very costly, and those with significant regulatory resources are most likely to be compliant, especially the big banks and big tech.

This does not mean that regulators should just stop what they are doing, as we need to reduce risks and mitigate negative externalities at all levels. However, European citizens and businesses will want to fully participate in the global digital economy and need access to tools like stablecoins, practically independent of regulatory nuances. Citizens will expect consumer-friendly payment solutions to protect their privacy, and businesses need programmable money to modernize and expand. None of them should be aimed at non-EU solutions or exchanges, which are often unregulated and lacking consumer protection just because European regulations accidentally choked the market.

Connected: Europe is waiting for a regulatory framework for crypto assets to be implemented

The euro’s global relevance also depends on its approach to stablecoins

While Europe is free and working according to its plan, stablecoins have become a central part of the global digital economy, driving innovation, expansion and growth. And it’s no surprise that the top stablecoins are now pegged to the US dollar. Every day, more than $ 100 billion is traded digitally via protocols such as Tether (USDT) or USD Coin (USDC); The equivalent daily euro trading volume is close to zero.

In essence, today’s stablecoin projects are making the global dollarization of the blockchain ecosystem easier by distributing American coins seamlessly and easily around the world. The same can be achieved with a largely digital euro, of course if we get it going.

The digital economy of the future will be characterized by an increasing variety of business models and use cases. It will require multiple payment systems and solutions that incorporate digital currencies running on multiple infrastructures to coexist and complement each other. Europe not only needs to recognize the importance of the digital euro for the future of the European economy, but also the need for different types of digital euro. Ideally, this would not only include the Euro Central Bank’s (CBDC) digital currency, but also separate stablecoins related to the Euro and other systems.

Promoting European innovation by promoting diversity and a level playing field

To achieve global digital leadership, Europe needs a diverse, competitive digital ecosystem. This will enable the creation of its own solutions able to compete with global giants and nimble innovators from East and West. The regulatory requirements should be balanced and proportionate for all parties involved and should not have a negative impact on startups, grassroots innovators and smaller companies. Maintaining a truly level playing field is crucial to fostering the dynamic digital development that Europe needs and regulatory frameworks that are too strict or punitive will only strengthen existing dictatorships in technology and finance.

The European Union is a huge, highly developed economic bloc with enormous digital potential, but becoming a leading digital economy in the world is not something that can be taken for granted. The wrong political and regulatory decisions in Europe will not prevent innovations and investments in stablecoins and other distributed ledger solutions and infrastructures, they will only take them out of the EU and prevent them from coming back.

The EU is at a turning point. MiCA will be the norm that other jurisdictions must follow or avoid. Europe must be a catalyst for digital currencies, not a stimulus, and it must support various digital euro solutions if it is to remain geopolitically relevant. If Europe can move beyond narrow and defensive views and look at stablecoins in a broader perspective, reflecting the reality of their different structures, economic functions, technological designs and governance requirements, Europe can become a leader in the global digital economy of the future.

This article was co-authored by Agata Ferreira, Robert Kopitsch and Philipp Sanders.