European Central Bank Signals Urgency for Digital Euro Amid U.S. Stablecoin Concerns
FRANKFURT, Germany – February 6, 2023 – The European Central Bank (ECB) is increasing the pressure on legislative moves to support the digital euro, partly spurred by U.S. President Donald Trump’s proposal to bolster cryptocurrencies that are pegged to the U.S. dollar. Piero Cipollone, a member of the ECB’s board, expressed his hopes that this American initiative would accelerate the much-anticipated digital euro project.
The digital euro, envisioned as an electronic wallet backed by the ECB, aims to provide a versatile means of payment independent of dominant American payment providers such as Visa and PayPal. Cipollone highlighted the potential of U.S. stablecoins – digital currencies pegged to the dollar and gaining traction in Europe – to serve as a further impetus for European lawmakers to consider viable alternatives.
‘The political world is becoming more alert to this,’ Cipollone stated in an interview. He believes that Trump’s backing for stablecoins could create competition among payment systems, stressing the need for Europe to move swiftly on its digital currency agenda.
The European Commission had previously proposed legislation for the digital euro in June 2023; however, progress has been stunted due to skepticism from certain lawmakers and financial institutions. Cipollone expressed optimism that the EU Parliament and Council would finalize their discussions on the digital euro legislation by the summer, thus allowing for negotiations with the Commission. If this timeline holds, the new regulations could be concluded by November, coinciding with a crucial ECB vote on whether to green-light the digital currency.
While acknowledging the complexity of political processes, Cipollone noted, ‘Obviously the sooner the better, but we fully understand their needs.’
However, some EU lawmakers, such as Markus Ferber, have indicated that a report from the Parliament might only be prepared by the summer, revealing differing expectations regarding the legislative timeline.
One of the significant concerns for the ECB involves the implications of U.S. stablecoins on European banks. Cipollone labeled the growing usage of dollar-pegged stablecoins as ‘worrisome,’ explaining that if Europeans begin utilizing these stablecoins for payments, it could lead to considerable shifts in deposits away from European banks to U.S. counterparts. ‘If people in Europe start to use stablecoins to pay, they will be transferring their deposits from Europe to the United States,’ he commented.
Despite worries that a digital euro could similarly drain deposits from traditional banks, the ECB is considering implementing limits on digital euro holdings, potentially capping them at a few thousand euros and suggesting that these deposits would not earn interest to mitigate banks’ fears of losing customers.
As the ECB navigates these challenges, it’s worth noting that several nations, including Nigeria, Jamaica, and the Bahamas, have already launched their central bank digital currencies (CBDCs), while 44 additional countries, such as Russia, China, Australia, and Brazil, are actively piloting similar initiatives. In contrast, Trump’s prohibition against the U.S. Federal Reserve establishing its own CBDC underscores the differing approaches to digital currencies across the globe.
As the landscape for digital currencies continues to evolve, the ECB’s efforts to advance the digital euro are expected to be closely watched both in Europe and abroad.
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