Euro Coin: the underbelly of a threat to European sovereignty

👉 The news. US company Circle, already issuer of the USDC, will launch a euro stablecoin on 30 June.

👉 The context. Rising rates in Europe and the end of debates in Parliament around the future regulation of cryptos (MiCA) offers Circle a perfect window of opportunity.

👉Why it matters.What could quickly become the largest euro stablecoin will be controlled from the US and could escape Brussels.

Like a thunderclap. Last Thursday, the American giant Circle announced the launch of a euro stablecoin, the Euro Coin. The news prompted strong reactions from some leading figures in the European crypto ecosystem. "So the US regulator will supervise one of the only... euro stablecoins! How short-sighted of our leaders!" reacted former French MP Pierre Person. "Great, so now the Americans will be issuing our digital euro. Shame on our European leaders!"

For his part, Julien Bouteloup, a leading crypto entrepreneur (Curve, StakeDAO), fulminated.

If the reactions have been so strong, it's because the subject is a sensitive one. Stablecoins have become an essential link in crypto. Over the past 12 months, $6213 billion worth of stablecoins have been traded, according to analysis company CoinMetrics. The development of a euro stablecoin is vital, as the dollar accounts for 99% of stablecoin trading. Euro stablecoins backed by French players do exist, such as Lugh (backed by the Casino Group and Société Générale), jEUR (Jarvis Network) and agEUR (Angle Protocol), but these are still not very liquid and are relatively confidential.

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Inversely, Euro Coin, with Circle's strike force, could quickly be available just about everywhere and become the largest stablecoin denominated in the single currency!

Circle explained that the Euro Coin reserve will be placed "with financial institutions within the US regulatory perimeter, starting with Silvergate Bank". The latter is based in California and notably recovered the assets of Diem, the stillborn digital currency project of Meta (ex-Facebook), after it was dismantled in early 2022.

Rising rates in Europe could justify the launch

Why did Circle decide to launch now, and not before? Although the American company has not communicated on this, the context may have strongly influenced its decision. Firstly in monetary terms. Since 2014, commercial banks have had to pay a 'tax' on the funds they leave in the ECB's vaults (currently 0.5%). This complicated the profitability of stablecoin projects based on a bank reserve. However, Christine Lagarde pledged on 9 June to put an end to this by September...

Surging interest rates on European bonds may also have had an impact on the timetable for the company headed by Jeremy Allaire. As the USDC's reserve is made up of cash and short-dated US Treasuries, the same is likely to be true of the Euro Coin. As Circle does not charge any fees when issuing its stablecoins, the company needs to grow its reserve to be profitable.

Now, all the lights are green, especially as the launch on 30 June should coincide -very exactly- with the end of discussions in the European Parliament around the future regulation of the sector (MiCA). Coincidence or not, Circle will therefore not be the subject of a specific exchange, which should suit it just fine.

The issue of European regulation

As it stands, Euro Coin is exempt from any European jurisdiction, but it will have to comply with MiCA when it comes into force (not before 2023) in order to be available in Europe. In other words, Circle will have to obtain a licence for its stablecoin to be distributed in Europe. This will involve setting up a local subsidiary and probably keeping the funds with an EU bank. For the moment, this is not what is in the offing, and Brussels is likely to do everything in its power to put obstacles in its way. But if the project is not aimed directly at Europeans, the EU will have a hard time reaching it...

According to William O'Rorke, a lawyer with ORWL, a firm specialising in disruptive technology law, "as long as they don't set foot in Europe, they should be fine". In his view, if Circle refrains from distributing it in Europe and advertising it, Brussels won't be able to do much about it.

According to a note published on 20 June by several European legal experts, the Euro Coin could be used in international financial centres such as New York, Hong Kong, Singapore, as well as London and Zurich, which are not part of the European Union. As you will recall, blockchain technology enables cross-border payments to be made virtually instantaneously at near-zero cost. This is far more advantageous than with the traditional system, where it takes several days to process a transaction (excluding fees). These are all features that could encourage foreign institutional players to use Euro Coin.

These experts also point out that it could be used as a foreign exchange reserve in place of the traditional euro for many countries, as well as international institutions such as the International Monetary Fund (IMF). For European multinationals, such as carmakers, it could also be used via their foreign subsidiaries to route all their transactions outside Europe. They would simply have to convert their Euro Coin on a foreign exchange platform into euros and then repatriate them.

"Although it may seem strange at first glance, there are huge commercial opportunities for issuers of a stablecoin euro that would not be available in Europe," insist the experts. All under the patronage of the US regulator.