Stablecoins denominated in US dollars have attracted considerable attention in the context of their growing influence in US Treasury markets. However, the potential effects of euro-denominated stablecoins on euro area sovereign debt markets have been less explored, partly owing to their currently limited market presence. This article explores how the growth of euro-denominated stablecoins could affect demand for euro area sovereign bonds. By determining the pass-through rate of stablecoin demand to sovereign bond holdings by way of several illustrative examples, we demonstrate how the effect varies based on whether stablecoins are issued by banks or e-money institutions (EMIs), on the composition of stablecoin reserve assets, and on the liquidity management preferences of banks and EMIs […]