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European Central Bank Pushes for Digital Euro Amid Rising Concerns Over U.S. Stablecoins

February 6, 2025
Smart Money

European Central Bank Sees U.S. Stablecoins as a Threat to European Financial Stability

FRANKFURT, February 6, 2023 – The European Central Bank (ECB) is increasingly concerned about the impact of U.S. stablecoins on the European banking sector, as it seeks to advance its plans for a digital euro. ECB board member Piero Cipollone expressed these concerns in a recent interview with Reuters, noting that U.S. President Donald Trump’s initiative to support dollar-pegged cryptocurrencies could accelerate the legislative process for the European digital currency.

U.S. Stablecoins and Their Global Influence

Cipollone highlighted that stablecoins, particularly those linked to the U.S. dollar, pose a significant risk to the stability of the European banking system. He emphasized that the proliferation of these digital payment tools encourages the transfer of deposits from European financial institutions to U.S.-based alternatives. ‘If people in Europe start to use stablecoins to pay, given that most of them are American and dollar-based, they will be transferring their deposits from Europe to the United States,’ Cipollone stated.

This shift could undermine European banks’ deposit bases and contribute to an unstable financial environment. The ECB has observed that the growing acceptance of U.S. stablecoins may divert funds away from European banks, which raises concerns about financial security in the region.

Push for the Digital Euro

In light of these developments, the ECB is moving forward with its proposal for a digital euro, designed as an electronic wallet backed by the central bank. This digital currency aims to provide an alternative to existing payment methods dominated by U.S. companies like Visa and PayPal. According to Cipollone, the urgency brought on by U.S. support for stablecoins could potentially hasten the legislative approval of the digital euro.

The European Commission had initially proposed regulatory frameworks for the digital euro in June 2023, but progress has been slow due to hesitation among some lawmakers and banking representatives. Cipollone expressed optimism that increased political awareness regarding digital currencies could lead to quicker legislative action. ‘It’s possible that we will see an acceleration in the process,’ he remarked.

Legislative Timeline and Concerns

Cipollone hopes that the European Parliament and Council can finalize discussions on the digital euro legislation by summer 2023, which could facilitate negotiations with the European Commission. The goal is to wrap up regulatory frameworks by November 2023, aligning with a critical ECB vote on whether to proceed with the launch of the digital currency.

However, EU lawmaker Markus Ferber has suggested that even the most optimistic timetable may only result in a report from Parliament by summer.

Addressing Bankers’ Fears

There are apprehensions among banking professionals regarding the potential impact of the digital euro. Many fear that a widely adopted ECB-backed wallet might result in a significant outflow of deposits from traditional banks. To mitigate these risks, the ECB is contemplating capping digital euro holdings at a few thousand euros, and it may not offer interest on these deposits, making it less attractive compared to current banking options.

Meanwhile, other nations have been forging ahead with their own central bank digital currencies (CBDCs). Countries like Nigeria, Jamaica, and the Bahamas have already launched their initiatives, with an additional 44 nations, including China and Russia, testing various pilot programs. In contrast, Trump’s administration took a different approach, prohibiting the U.S. Federal Reserve from issuing its own CBDC.

As the digital currency landscape evolves, the ECB remains vigilant, working to protect European financial interests while navigating the complexities of this innovative financial technology.