The EU wants to accelerate its plans for the digital euro, as the Financial Times writes, citing insiders. According to the report, public cryptocurrency blockchains such as Ethereum or Solana are even being discussed as the technical basis for the digital central bank money. The background to this is the concern about the competitiveness of an EU digital currency in view of the stablecoin regulations recently adopted in the USA.
These are the so-called Genius Act, which the US government under President Donald Trump passed in July. Among other things, it stipulates that providers who want to issue stablecoins pegged to the dollar must collateralize them at least 100 percent with cash, short-term US government bonds or money market funds. Stablecoins are usually tokens issued in several cryptocurrency networks that are pegged 1:1 to an underlying asset such as the US dollar, euro or other cryptocurrencies.
Stablecoins were previously used primarily in cryptocurrency trading as a US dollar equivalent, but could also play a greater role in payment transactions in the long term. The largest providers are currently Tether and Circle, with the latter also operating a euro stablecoin with a market capitalization of around 200 million euros.
According to Coinmarketcap, the entire stablecoin ecosystem is currently worth the equivalent of 245 billion euros, with most coins pegged to the US dollar. Many market observers expect a boom in stablecoins. US Treasury Secretary Scott Bessent expects the market to grow to a value of 3.7 trillion US dollars by 2030. Major US banks such as JPMorgan Chase and Citi are among those planning their stablecoins.
Pressure to move due to US stablecoins
The rapid adoption of the US law has now caused uncertainty among EU officials, writes the Financial Times. EU officials feared that the new US legislation would further boost the already positive trend of dollar-pegged tokens. A digital euro is now needed to protect the dominance of the euro on the home continent. The corresponding plans need to be accelerated. The use of a public blockchain is also increasingly being discussed, although its use in the EU is likely to encounter data protection problems. Blockchain payments are publicly visible and users are generally only protected by pseudonymous addresses.
Piero Cipollone, member of the Executive Board of the European Central Bank (ECB), warned against US stablecoins back in April. In his opinion, the promotion of US dollar-backed stablecoins by the US government is a cause for concern for Europe’s financial stability and strategic autonomy. Cipollone fears that euro deposits will be shifted to the US and that the role of the dollar in cross-border payments will be further strengthened harming the euro.
EU still working on it
The digital euro is currently still in the preparatory phase. For years, the monetary authorities in the eurozone have been working on a digital version of the European common currency to be able to stand up to the US providers that dominate digital payments. The EU Commission has proposed a legal framework for 2023, but final legislation is still in the works. And no decision has yet been made on the possible technical basis for the whole thing, as the ECB explained to the Financial Times. Both centralized approaches and decentralized blockchain technology are being considered.
However, there is plenty of criticism of the EU’s plans. Most banks and savings banks in Germany are critical of the introduction of a digital euro. From their perspective, it is not yet clear what specific additional benefits the digital euro should offer compared to existing payment methods such as real-time transfers. The banks also fear for their deposit business. According to a study by the consulting firm PwC, the introduction of the digital euro would also be costly. Extrapolated to the entire eurozone, the total costs could be between 18 and 30 billion euros, depending on the scenario. Banking apps, online banking, payment cards, terminals – would all have to be adapted.
(axk)