As we continue exploring the future of digital money, the regulatory landscape becomes increasingly critical. 

Stablecoins are already widely adopted and gaining momentum, yet governments worldwide are actively developing Central Bank Digital Currencies (CBDCs). Given this scenario, one might wonder: why haven’t stablecoins faced bans, especially when they compete directly with government-backed currencies?

In this third part of our series, we’ll dive deeper into the current regulatory outlook. We’ll examine how authorities across major jurisdictions view stablecoins, why they’ve opted for regulation rather than prohibition, and how these frameworks coexist with ongoing CBDC plans. 

If you’re just joining us, we highly recommend reading Part 1, where we covered the basics of CBDCs and stablecoins, and Part 2, which explored controversies and adoption trends. 

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Why Haven’t Stablecoins Been Banned? Regulation and Outlook

Given the rapid rise of stablecoins, one might wonder: why haven’t governments simply banned them, especially if they plan to introduce CBDCs? 

The reality is that most regulators have chosen to regulate, not ban, stablecoins. 

Here’s why and how regulators are approaching them:

Acknowledging Innovation vs. Sovereignty

Regulators see that stablecoins can offer useful innovations (faster payments, fintech growth) but also realize they need oversight (to ensure reserves are safe, to prevent misuse, etc.).

Outright banning stablecoins would likely just push the activity offshore or into grey markets. Instead, authorities are working on frameworks to supervise stablecoin issuers. 

For example, the European Union passed the Markets in Crypto-Assets (MiCA) regulation, a comprehensive crypto law, in 2023. MiCA includes specific provisions for stablecoins (termed “e-money tokens” and “asset-referenced tokens” in the law). 

Its rules – already into effect since mid-2024 for stablecoins – require issuers to be licensed, hold sufficient reserve assets, and meet investor protection and transparency standards. 

The EU’s choice to integrate stablecoins into the regulatory fold (rather than outlaw them) indicates a recognition that these coins will coexist with traditional finance. 

That said, the EU also placed some limits: MiCA aims to prevent large-scale use of foreign currency stablecoins for everyday payments in the Euro area, to protect monetary sovereignty, according to this source. 

There was debate that popular dollar stablecoins like USDT/USDC might face caps in Europe if they got too big in retail usage – reflecting the EU’s desire to encourage a future digital euro for Euro-denominated transactions. 

Still, within a clear regulatory framework, stablecoins are legal to issue and use in the EU, and indeed Euro-backed stablecoins themselves are being developed to serve the market.

Regulatory Stance in the US

In the United States, stablecoins currently operate in a bit of a patchwork regulatory environment, but momentum is building for federal legislation to formally bring them under oversight. 

Major USD stablecoins (USDT, USDC) are already managed by companies under U.S. jurisdiction (or that of friendly nations) and comply with measures like anti-money laundering (AML) requirements. USDC’s issuer Circle, for instance, is a licensed money services business and regularly publishes attestations of reserves. It’s also the first MiCA-compliant stablecoin in the EU.

Rather than banning stablecoins, U.S. regulators have been looking at how to safely integrate them. In late 2024 and into 2025, there’s been strong political signaling in favor of stablecoins as part of the financial system: U.S. policymakers have openly stated support for dollar-backed stablecoins as a way to reinforce the dollar’s global role, while expressing opposition to a government-run digital dollar, as outlined by Atlantic Council. 

In early 2025, a consensus emerged among U.S. federal stakeholders against launching a retail CBDC, with focus turning instead to creating rules for stablecoin issuers. Influential lawmakers have argued that broader adoption of regulated stablecoins could “extend the reserve currency status” of the U.S. dollar in the digital age. 

This pro-stablecoin, anti-CBDC tilt (at least in the current U.S. political climate) suggests that far from banning stablecoins, the U.S. will likely formally legalize them through something like a Stablecoin Act that sets standards for reserves, audits, redemption rights, etc. The goal would be to ensure stability and interoperability with banking, much like money market funds.

Other Jurisdictions

Many other countries are also allowing stablecoins within regulatory bounds. Japan passed a law in 2022 defining stablecoins as digital money and allowing only licensed banks and companies to issue Yen-pegged stablecoins, to protect consumers. 

The UK has signaled that certain stablecoins will be recognized as a valid form of payment and brought under existing e-money regulations, with plans to tighten oversight via its Financial Services and Markets Act modifications. 

In sum, the trend among regulators is to bring stablecoins into the regulatory perimeter – treating them somewhat like banks or payment companies – rather than prohibit them outright. 

One reason is that regulators differentiate between stablecoins and unbacked crypto: a well-regulated stablecoin is more akin to a digital version of a money market fund share or a stored-value instrument, whereas unpegged cryptos (Bitcoin, etc.) pose different risks (volatility, no underlying claim).

By regulating stablecoins, authorities aim to harness their benefits (efficiency, inclusion, competitiveness in cross-border payments) while mitigating risks (like issuer default or run risk).

Relation to CBDC Plans 

The coexistence of stablecoins and eventual CBDCs seems likely. We may see a future where central banks issue CBDCs for certain uses, while private stablecoins continue to exist for other uses. 

In fact, some central banks might prefer a model where they focus on wholesale CBDCs or core infrastructure, and allow the private sector to distribute digital fiat through stablecoins or tokenized bank deposits. 

The European Central Bank’s digital euro project is a case in point – the ECB has said a digital euro would “integrate with the European payments landscape” alongside other forms of money. 

The ECB is involving private payment providers in its prototype, indicating that banks or fintechs might interface with consumers rather than the central bank doing it all. 

This could mean that in the Eurozone’s future, you might have both a digital euro wallet and still use private euro stablecoins or bank tokens for certain services.

Public Sentiment and Politics 

Finally, it’s worth noting that the soft approach to stablecoins is partly because public sentiment has not demanded a crackdown. 

Stablecoins, unlike some other crypto products, haven’t been at the center of major scandals that hurt everyday consumers (with the exception of the TerraUST collapse, which was an algorithmic stablecoin failure – and regulators took that as a lesson to avoid unbacked algo-coins). 

There is no large constituency calling for stablecoins to be outlawed. On the contrary, businesses and crypto users are finding them genuinely useful. Meanwhile, the political energy (especially in the West) has been more focused on scrutinizing the idea of CBDCs (as we saw with public skepticism). 

Politicians in the U.S. introduced bills to prevent a retail CBDC over fears of surveillance, and similar debates play out in Europe and elsewhere. This political climate makes it easier to foster stablecoin innovation (with oversight) as a more palatable alternative.

Regulators have so far mostly embraced a regulated stablecoin environment as part of the status quo, while CBDCs undergo careful study and slow rollout. The coming years will likely see clearer legal status for stablecoins (e.g., equivalent to electronic money with deposit-like safeguards), which could further boost business confidence in using them.

The EU’s Plans for a Digital Euro (CBDC)

It’s worth highlighting what’s happening in the European Union regarding CBDCs, since the EU is at the forefront of developed economies planning a central bank digital currency. 

The Eurozone’s project – commonly referred to as the “digital euro” – illustrates how a major jurisdiction is approaching a CBDC and how this might coexist with stablecoins:

Current Status

The European Central Bank completed a two-year investigation phase and in November 2023 moved into a preparation phase for the digital euro This phase involves finalizing a rulebook (the legal and functional blueprint for the currency) and selecting technology providers to build the infrastructure. 

It also includes prototyping and extensive testing. The ECB is engaging with stakeholders (banks, merchants, civil society) and has promised regular progress reports. 

Essentially, the groundwork is being laid so that if and when political authorities give the green light, the ECB can launch a digital euro relatively quickly.

Design Considerations

The ECB has outlined that a digital euro should provide “access to public money in the digital age”, meaning it functions like cash (safe, universal acceptance) but in digital form. It emphasizes the need for high privacy for consumers and fair fees for merchants. 

We can infer that the system might mimic some features of cash: for example, small transactions might be offline or not traced (to protect privacy for low-value payments), whereas larger transactions might have standard AML checks. 

ECB officials have indicated the digital euro would likely be intermediated – i.e., people might hold their digital euros via banks or approved wallets rather than directly with the central bank, to leverage existing customer service and compliance infrastructure. 

This also helps alleviate the bank disintermediation concern by keeping banks in the loop. Crucially, the ECB and European Commission have reassured that the digital euro is “not a replacement for cash” but an addition. As long as cash remains, people can choose, and the existence of cash puts competitive pressure on the digital euro to offer privacy and no negative interest (since otherwise people could flee to cash).

Timeline

Officially, no fixed launch date is set yet. The preparation phase will run through 2024 and 2025, after which the Governing Council of the ECB could decide to proceed with implementation. 

Some in the EU are hoping for a possible rollout around 2026-2027 if all goes well, but it could be later. Notably, any launch requires legislation: the European Commission proposed a draft law in mid-2023 to establish the legal basis for a digital euro, but as of early 2025, the European Parliament had not yet voted on it. 

Lawmakers are being cautious, indicating they want to thoroughly evaluate the proposal. The outcome likely depends on further design details and public reception during this phase. In the best case, a pilot digital euro could appear in a few years, with a full launch by the end of the decade. 

In the meantime, private Euro-backed stablecoins (like EUROC or EURT) continue to operate, albeit at a smaller scale than USD stablecoins.

Coexistence with Stablecoins

Europe provides an interesting case of balancing CBDC plans with stablecoin regulation. As noted, MiCA will regulate stablecoins in the EU. The ECB, while pushing for a digital euro, is aware that people are already using stablecoins. 

European regulators likely envision a two-tier system: the digital euro for public sector money needs (and perhaps for domestic retail use as a safe option), and regulated stablecoins for those who prefer private solutions or for specific niches (like crypto trading, DeFi, or as a bridge between crypto and fiat in services). 

The key is that Euro-denominated stablecoins under MiCA will have to meet high standards (similar to e-money institutions), ensuring they don’t undermine the euro’s stability. If, say, a digital euro comes out in a few years and is widely adopted for retail payments, stablecoins might shift more to cross-border and crypto-market roles. 

Alternatively, if the digital euro faces slow uptake, euro stablecoins might continue to fill the gap for digital euro liquidity in markets. The public sentiment in Europe will influence this: if Europeans trust that the digital euro truly protects privacy and adds convenience, they may use it; if they remain skeptical, they might stick with cash and private digital alternatives.

In the bigger picture, what happens in the EU will serve as a model (or cautionary tale) for other developed economies. 

The UK is also exploring a “digital pound” (nicknamed “Britcoin” by some). In January 2024, after public consultations, UK authorities said they’re continuing to develop the idea, with privacy safeguards and no rush to implementation – aiming perhaps by 2030. 

Japan and Canada are studying CBDCs but have not committed to launch. So, the Western world’s CBDC journey is cautious and measured, especially compared to pioneers like China. 

During this time, stablecoins will further entrench their position, which brings us to the final consideration: the shifting tides of public and market preference.

Regulation Shapes the Playing Field, But the Game Isn’t Over

As we’ve seen, the regulatory response to stablecoins has been surprisingly measured and pragmatic. Instead of issuing blanket bans, governments around the world are creating frameworks to supervise and integrate these digital assets into the broader financial system. From MiCA in the EU to pro-stablecoin sentiment in U.S. policymaking, the trend is clear: stablecoins are not only here to stay, but increasingly legitimized as a viable part of the digital finance ecosystem.

Meanwhile, CBDCs are still in development, with central banks treading carefully. In regions like the EU, digital currency efforts are ramping up—but so are the conversations around how these public-sector tools will coexist with private-sector innovations. The reality is, we’re likely heading toward a dual-track future where both CBDCs and regulated stablecoins operate side by side, each with different use cases, audiences, and trade-offs.

What matters now is how businesses and individuals prepare. Understanding how regulation affects usability, compliance, and interoperability is key. And while CBDCs remain a work in progress, stablecoins are already enabling faster, cheaper, borderless payments today.

In Part 4 of this series, we’ll dive deeper into what all of this means in practice. What role will each digital currency play in the real world? Will we see dominance, coexistence—or even convergence?

Stay tuned as we break down potential future scenarios, from widespread CBDC adoption to stablecoin-first ecosystems, and what it all means for your business. And, perhaps, we will finally be able to answer the original question – which will prevail?