European Central Bank Urges Swift Action on Digital Euro Amid Concerns Over U.S. Stablecoins

Frankfurt, February 6, 2024 (Reuters) – The European Central Bank (ECB) is increasing its efforts toward the development of a digital euro, influenced by the recent support for U.S. stablecoins from former President Donald Trump. Piero Cipollone, a board member of the ECB, articulated worries over the impact of U.S. dollar-pegged cryptocurrencies on European banks, urging for more expedited legislative backing for the digital euro.

The Push for Digital Currency

Cipollone remarked in an interview that the ECB’s digital euro would serve as an online wallet backed by the central bank, providing an alternative electronic payment method that minimizes reliance on leading U.S. providers such as Visa and PayPal. The digital euro aims to establish a robust payment system within the European Union, countering U.S. market influences.

Cipollone acknowledged Trump’s advocacy for globally accessible U.S. stablecoins as a catalyst for the ECB’s digital euro initiative. He expressed optimism that this development would heighten political awareness in Europe and accelerate the timeline for digital euro legislation.

‘The political world is becoming more alert to this,’ Cipollone stated, hinting that momentum is building to finalize the necessary legislative framework sooner rather than later. He expressed hope that the European Parliament and Council would complete their work on the legislation prior to summer, potentially allowing for negotiations with the European Commission to begin thereafter.

Legislative Hurdles

The European Commission introduced a proposal for digital euro legislation in June 2023; however, progress has stalled amid apprehensions expressed by certain lawmakers and bankers. Lawmaker Markus Ferber suggested that while there may be a report ready by summer, concrete advancements may take longer to materialize.

Cipollone underscored the complexities of political processes, acknowledging the various interests involved, but emphasized the urgency for resolution. The ECB is poised to decide by November on whether to launch the digital euro, contingent upon the successful passage of the legislation.

Concerns Over U.S. Stablecoins

Cipollone raised significant concerns about the increasing popularity of U.S. stablecoins, stating that their potential adoption in Europe could lead to a diversion of deposits away from European banks. ‘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,’ he noted.

Bankers share this apprehension, fearing that the launch of a digital euro could similarly undermine traditional banking by prompting customers to move their funds into an ECB-backed digital wallet for safety.

To assuage concerns from financial institutions, Cipollone revealed that the ECB is considering measures such as limiting digital euro holdings to a few thousand euros and not providing any interest on these deposits, thereby addressing potential liquidity issues for banks.

Global Context of Digital Currency

The ECB’s initiative is part of a broader trend, as numerous countries explore or have already implemented Central Bank Digital Currencies (CBDCs). Currently, nations including Nigeria, Jamaica, and the Bahamas have rolled out their CBDCs, while 44 others, including global powers like Russia, China, Australia, and Brazil, are testing pilots, according to data from the Atlantic Council.

In a contrasting move, Trump had previously taken a stance against the issuance of a CBDC by the U.S. Federal Reserve, showcasing the varying global approaches to digital currency.

As the ECB aims for a timely launch of its digital euro, it faces not only legislative hurdles but also global competition and the pressing need to ensure the stability of Europe’s financial landscape.

This developing situation will be closely monitored as the ECB navigates these challenges in the months ahead.

Reporting by Francesco Canepa; Editing by Kirsten Donovan

For more news, visit Reuters.com.

Share this article: