Over the last couple years, I wrote a number of articles diving into how the EU is cooked. This conclusion is based upon many factors, most which are outside the scope of what we will discuss here.
However, with this in mind, we have another battle brewing for the EU, one that is only going to multiply the impact on the path towards decline. It has nothing to do with Russia, military, or tariffs. Instead, we are facing a currency war.
This battle is the USD versus the euro.
I know, anyone who reads my articles knows how I think this is a moot point. However, sometime delusion can run deep.
Here is the headline from an article detailing the mindset of EU monetary officials.
This is a situation that really has little to do with Trump. The fact his administration is pro-crypto is a tailwind but it is really much bigger. The EU is going to combat what is taking place in what I view as a losing manner.
What we are looking at is a stablecoin war that is based upon a philosophical outlook. Unfortunately, for our friends in Europe, the history of money is not on their side.
So what is taking place?
At the core of this is the anticipated passing in the United States of stablecoin legislation. Most are expecting this to be signed this year.
If this goes through, my forecast is that it will unleash a multitude of USD stablecoins. There will be hundreds of them showing up in a short period of time. Some have predicted that this number could grow to 10,000.
I think one of the key components to the legislation is that stablecoin companies back the tokens with US Treasuries. This will be a requirement for legal status in the US, the ability to be on centralized exchanges along with integration with the banking system. By the way, the US banks are going to bring out their own stablecoins as evidenced by the announcement by Bank of America.
Here is one side of the battle.
The USD is likely to be enhanced by hundreds (if not thousands) of stablecoins brought out by a multitude of companies.
What is the counter by the EU?
The EU feels the answer is to counter with a central bank digital currency (CBDC). Here is where we have a clash in philosophies, one that does not favor the Europeans.
The European Central Bank has worked for several years to establish the digital euro to compete with dollar-backed stablecoins. According to its official website, the ECB plans to set out details for piloting and rolling out the digital euro in Q2 of this year — and have the draft rulebook for the digital currency in Q3.
Due to the change in US sentiment towards cryptocurrency, many feel the acceleration of the digital euro is required.
In viewing this, the conclusion by EU officials that the euro is under threat is not incorrect. This is exactly what is happening. It has nothing, however, to do with Trump. He only removed the headwinds that were suppressing the industry.
"The ESM supports the European Central Bank's urgency in making the digital euro a reality to safeguard Europe's strategic autonomy," Gramegna said Monday. "This digital Europe is today more necessary than ever."
It is evident what the Europeans believe the solution is. A CBDC is going to put them on par with the US dollar and keep the sovereignty of the euro going. This will allow the EU to jump into the digital age. This will hand the European Central Bank the power it needs to keep the EU competing on the global stage.
Hence, the lines are drawn. We have a fully top-down approach chosen by the Europeans versus a more distributed solution put forth by the United States.
One point to make clear before delving further: the US government is keeping its thumb on the stablecoin industry. This is not to be confused with fully decentralized and open. We are dealing with regulation and entities will be forced into compliance.
There is also an avoidance of the discussion of non-asset backed stablecoins. They will operate in the DeFi world but will not be tied to the traditional financial system.
With that out of the way, let us look at monetary history.
The challenge with the top-down approach is it never succeeded for long. Money was designed for one purpose: to facilitate trade. This means that merchants decided what they will utilize.
Governments took control of the minting process. This allowed for a greater degree of control. However, we see evidence of how this is not total in the early days of "globalization". Those involved in international trade were able to select which currencies they accepted. This was based on criteria that most commonly believe.
If we fast forward, we see how anyone online is akin to a traveling merchant in 1000 AD. Simply by logging on, one is global. The digital world changes everything.
Getting back to the stable coin issue, the European officials have some concerns.
This is one of the major fears:
Gramegna added that the U.S. support could eventually lead U.S. and foreign tech giants to launch mass payment solutions based on USD stablecoins — the success of which may disrupt Europe's monetary sovereignty and financial stability.
I have news for the European officials: this is already happening and it is not going to stop. When we look at the existing stablecoin market, there is a reason the overwhelming majority of those issues are USD denominated. That is what the market is asking for and being utilized.
The US dollar is the global reserve currency. Some might state this is the reason for stablecoins mirroring this. To a degree, that could be accurate. However, there is something much bigger taking place.
We are in the 2020s. Whether people want to accept it or not, money is now digital. The idea of needing a digital euro is absurd; it already exists. This is true for most currencies. Cash transactions, i.e. those done using banknotes, is minimal. To the users, a cash app, crypto wallet, or commercial bank interface means the same thing. Each allows people to move around "numbers on the screen".
Overlooked in this discussion are the network effects. The EU is screwed in their endeavor due to this simple fact.
The US dollar is the only international currency. For all the discussion about the euro, it is operates regionally. Certainly, we can look at the data and see it is the number 2 currency in the world. However, it is far from international.
When entering the digital realm, network effects drive much of the utility. We have decades worth of evidence regarding online platforms. Commerce, software and social media highlight this better than anything else.
Facebook, YouTube, Amazon, Apple and Windows have overwhelming market share because of this. In spite of hundreds of options emerging, nothing has really dented the numbers of these entities.
As I said repeatedly, the US dollar is no longer a currency. Instead, we are dealing with a measurement, or a language if you will. This entire article details a conversation about the US dollar without really mentioning the currency itself. While the banking system will likely be involved, much of this is happening outside commercial banks. Technology companies will jump on board, altering the landscape even more.
The EU is trying to put the euro against the USD when the real fight is akin to the mile replacing the kilometer.
We are going to see a hybrid system. This means crypto will be merge, in some form, with traditional finance. What system has the largest infrastructure tied to it? It certainly isn't the euro.
When we look at payments, funding, derivatives, and collateralization, the infrastructure is overwhelmingly leaning towards the US dollar. In other words, most of the global financial system is already USD dependent.
This is not going to change simply by bringing out a CBDC. If we look at digital success, larger platforms command greater market share because of what is offered. Years of development provides features (options) for users. Network effects extend beyond users. Platforms themselves instigate them through features and services.
As more is offered, users do more.
What do you think happens when some of the named companies above start to bring out their own USD stablecoin? Is a "digital euro" going to compete with Meta, Google, Apple, X, and Spotify, let alone hundreds of other companies?
History shows the answer on this one.
