Europe pushes for digital euro as US stablecoins surge

The Eurogroup is promoting the digital euro in response to the growth and expansion of US stablecoins, seeking to strengthen European monetary sovereignty and adapt to the challenges of digital finance. 

In a context marked by the growing adoption of cryptocurrencies and stablecoins, the Eurogroup has intensified its efforts to develop a digital euro. This project seeks to counter the growing influx of private digital currencies, especially those pegged to the US dollar, which could weaken the eurozone's monetary sovereignty.

Stablecoins, whose value is pegged to fiat currencies like the dollar, have gained popularity as an alternative to volatile cryptocurrencies and, in many cases, to fiat money. Given this constant growth, Europe believes that their widespread adoption across the continent could reduce the European Central Bank's (ECB) control over monetary policy, limiting its ability to respond to economic crises and protect the region's interests.

In this context, the digital euro is presented as a strategic solution, not only to compete with private stablecoins, but also to modernize the European financial system. Backed by the ECB, the digital euro seeks to guarantee financial stability, efficient payments, and the protection of user privacy, according to highlights from the Eurogroup, made up of the economy and finance ministers of the EU member states. 

The urgency of the digital euro in the face of stablecoin threats

Dollar-pegged stablecoins, such as USDT and USDC, pose a growing threat to European monetary sovereignty. The group believes that if a dollar-denominated stablecoin becomes the predominant means of payment in the eurozone, the ECB would lose influence over monetary policy and financial stability.

Although this may seem like a hypothetical scenario, the reality is that the massive adoption of foreign stablecoins could displace the euro as the reference currency, weakening the ECB's ability to implement economic stimulus measures or control inflation. For example, during the COVID-19 crisis, the ECB resorted to bond purchases to support the European economy, a tool that could be limited if transactions are conducted predominantly in foreign currencies.

To avoid this situation, the Eurogroup has underscored the urgency of developing a digital euro, which is essentially a central bank-developed digital currency (CBDC). This project not only seeks to offer a secure and reliable alternative to private stablecoins but also to modernize payment systems in Europe. A digital euro would allow for faster, cheaper, and more secure transactions, both domestically and across borders, benefiting both citizens and businesses.

For example, a small Spanish company that sells products online throughout Europe currently faces high costs and delays when receiving payments from customers in other countries. However, with the digital euro, these payments could be made instantly and at a significantly lower cost, improving the company's efficiency and profitability.

The impact of the digital euro on European monetary sovereignty

Monetary sovereignty is a fundamental pillar of the eurozone's economic and political autonomy. Controlling the currency and monetary policy allows the ECB to implement specific measures to respond to the needs of the European economy. However, reliance on dollar-denominated stablecoins could undermine this autonomy.

The Trump administration, with its "America First" policy, demonstrated how control over the dollar can be used as a tool of geopolitical pressure. The economic sanctions imposed by the United States on other countries, for example, demonstrate the power that comes with dominating a global currency. 

In this context, the Eurogroup supports the creation of a digital euro as a key tool for strengthening European monetary sovereignty. By offering a digital currency issued and regulated by the ECB, this initiative would allow the central bank to maintain control over monetary policy and protect the region's interests. Furthermore, the digital euro could complement fiat money, offering a secure and reliable digital alternative for citizens and businesses.

The ECB's progress on the digital euro: Privacy concerns persist

The ECB has been actively working on the development of the digital euro for years. In October 2020, it published a report analyzing the potential benefits and risks of issuing this digital currency. The document highlighted the advantages of the digital euro in terms of efficiency, security, and monetary sovereignty, but also pointed out the challenges related to privacy and government control.

The ECB is currently in the experimental and design phase of the digital euro. Various implementation models are being evaluated, including the possibility of the digital euro being accessible directly to citizens through accounts at the ECB, or through private intermediaries such as banks and payment service providers. The choice of operating model for the digital euro will have a significant impact on its adoption and its ability to meet its objectives.

However, the project has also raised concerns regarding privacy and government control. Some critics fear that a digital euro issued and controlled by the ECB could allow the government to track and monitor citizens' transactions, potentially violating their privacy and financial freedom.

To mitigate these concerns, the ECB has assured that the digital euro will be designed with strict privacy and security standards to protect the integrity of citizens. 

So, while the primary goal of the digital euro is to offer a secure and reliable alternative to the rise of US stablecoins, it also seeks to allow the ECB to maintain control over monetary policy and protect the interests of the eurozone. This balance between security and privacy will be crucial to the project's success.

Investing in cryptoassets is not fully regulated, may not be suitable for retail investors due to high volatility and there is a risk of losing all invested amounts.