The European Central Bank is laying the groundwork for a digital retail euro by 2029 — a project designed as much to shield the bloc from US-dominated payments infrastructure as to modernise it.
With Europe reliant on networks such as Mastercard and Visa, Silicon Valley tech platforms and a fast-expanding ecosystem of dollar-linked stablecoins, the ECB argues the EU payments system is exposed.
Despite the Trump administration’s rejection of a central bank digital currency, there are concerns that some US-backed stablecoin efforts amount to a synthetic CBDC in all but name.
Alessandro Giovannini, ECB adviser to the director of the digital euro project, says two-thirds of all transactions in the EU are settled by non-EU card networks, with 13 out of 20 Eurozone states lacking any national card scheme of their own.
Addressing a seminar at the ECB’s Frankfurt HQ, Giovannini told The Banker: “When it comes to retail day-to-day payments, the digital euro is indeed a way to make sure that we offer people an option to pay that does not depend on tomorrow’s US-denominated stablecoins, co-badged with an international card scheme.”
Launching a digital euro, he added, is a strategic opportunity for supporting “a competitive and resilient European payments system”.
Chip off the bloc
To that end, the EU plans to compel manufacturers such as Apple and Google to provide access to the “secure element” of smartphones that enables safe digital payments.
June’s draft regulation for the digital euro would give legal backing to this demand. Phonemakers will be required to give paid access under “fair and reasonable terms”. Apple is, additionally, required to comply under the EU’s Digital Markets Act, which designates it a “gatekeeper”, meaning access could be free.
This would allow users to hold digital euros on their phones using native security on the device itself, rather than relying solely on apps.
In another sign of the ECB’s intent, non-EU suppliers are excluded from contracts to build the currency’s infrastructure. However, the ECB remains in regular discussions with the Bank of England to ensure that the digital euro and digital pound would be interoperable, should both projects proceed with legislative approval. The ECB is in similar discussions with Sweden’s Riksbank.
Our freedom, autonomy and security [are at stake]
The EU began studying CBDC options five years ago. In October, its governing council gave the green light to a pilot exercise targeted for 2027, ahead of a full rollout in 2029.
The timeline reflects a growing sense of urgency among EU lawmakers. Its leaders have said that the growing dominance of US payments providers is a direct threat to European self-determination.
“Our freedom, autonomy and security” are at stake more generally from excessive dependency, ECB executive board member Piero Cipollone also said in September.
Technological race
That urgency has been further fuelled by geopolitical shifts.
Washington is backing the rapid expansion of dollar-based stablecoins — a move widely seen as a new form of financial statecraft. The market capitalisation of all dollar-based cryptocurrency now exceeds $300bn worldwide, up from $200bn just seven months ago.
This is a technological race the US cannot afford to lose
Simon McLoughlin, CEO of blockchain finance infrastructure provider Uphold, said: “This is a technological race the US cannot afford to lose, and is also a powerful tool to implement American macroeconomic policy.
“Stablecoins help to preserve the hegemony of the US dollar by dollarising economies all around the world from the studs up — and at a time when dollar dominance is under threat.”
Systemic questions
It comes as leading central bankers express concerns over stablecoins’ growing influence on the global economy.
Olaf Sleijpen, the Dutch central bank governor and a key ECB policymaker, says the ECB would be forced to adjust monetary policy if a run on stablecoins sent a systemic shock through the global economy.
Erik Thedéen, chair of the Basel Committee on Banking Supervision, has said rules requiring the world’s banks to hold very high amounts of capital to absorb potential losses on crypto assets need to be reworked after the US and UK refused to implement them.
Plans for the digital euro include both online and offline functionality.
The latter would allow direct device-to-device payments between smartphones, enabling transactions during power outages or infrastructure failures.
The ECB can only issue physical cash under current EU law rather than digital tokens. As such, the Eurozone CBDC can only advance if EU governments and the European parliament provide a legal basis.
Opposition also persists within the European banking sector.
Lenders including BNP Paribas, Deutsche Bank and ING have warned that a digital euro could undermine private payment systems. Last year, 14 major banks joined forces to launch Wero, a European alternative to US-dominated networks.
Giovannini says the digital euro is a complementary innovation because of the legal certainty that it offers, with the infrastructure rollout serving to spur the efforts of the banks. “The private solution providers are free to do what they want. What we foresee is one track on which we have the public [digital euro] and the private together, not in competition.”