EU accelerates digital euro plans in response to US stablecoin law

EU officials are accelerating plans for a digital euro after a new US stablecoin law deepened concerns about the competitiveness of Europe’s digital currency.

The US Congress passed significant legislation last month to oversee the $288 billion stablecoin market, which is largely dominated by the dollar, following intense lobbying from the crypto industry.

Stablecoins are a type of digital token pegged one-to-one to a national currency and backed by reserves such as government bonds.

One person involved in the discussions told the Financial Times (FT) that EU officials have been “rethinking their digital euro plans” since the passage of the US legislation.

Sources familiar with the matter added that officials are considering using a public blockchain, such as Ethereum or Solana, for the digital euro instead of a private blockchain, which was previously expected, due to privacy concerns.

One person noted that the swift passage of the US law has “unsettled many people,” adding that they are saying, “Let’s speed up, push it.”

The European Central Bank (ECB) has been working for several years to create a digital euro that can be used freely across the eurozone.

Supporters argue that such a digital currency would enhance the euro’s global strength while giving people access to a form of payment backed by the central bank as cash usage declines.

EU officials are concerned that the new American law will further accelerate the already growing use of dollar-denominated tokens and believe the digital euro is necessary to maintain the single currency’s dominance on the continent.

“Discussions are starting that were not happening before the US law,” said one person, adding that the US move will trigger more debate on digital currency in Europe.

ECB executive board member Piero Cipollone said in April that the US government’s promotion of dollar-backed stablecoins “raises concerns for Europe’s financial stability and strategic autonomy.”

He added that this could lead to “the relocation of euro deposits to the US and a further strengthening of the dollar’s role in cross-border payments.”

Crypto companies Circle and Tether are among those operating dollar-pegged stablecoins, while US banks like Citi and JPMorgan are also considering launching their own.

Central bank digital currencies are forms of digital money created by a public authority. China is a leader in this field with its token, while the United Kingdom is also considering creating a digital pound.

Several euro-denominated stablecoins have been launched, the largest of which is operated by Circle and has a market capitalization of $225 million. However, the ECB’s creation of its own token would solidify the region’s commitment to digital assets.

“Europe cannot afford to become overly dependent on foreign payment solutions,” Cipollone said in April.

If the digital euro were to run on a public blockchain, it could be transacted anywhere, which could increase its circulation and use. However, officials have been cautious about using existing blockchains due to privacy concerns, as transactions are public.

One of the sources said that the use of a public blockchain is “definitely a topic that [EU officials] are now taking more seriously.”

Another source stated that the digital euro in its widely expected private form would “look a lot more like what the People’s Bank of China is doing, rather than what private companies in the US are doing,” referring to the privately operated token of the People’s Bank of China.

The ECB told the FT that it is evaluating “different technologies for the development of the digital euro, both centralized and decentralized, including distributed ledger technologies,” and that a decision on the matter has not yet been made.