Why the Digital Euro Is a Priority

The ECB says without a digital euro, European banks will lose their role as intermediaries in transactions.

The European Central Bank (ECB) is prioritizing the launch of a digital euro to counter the potential threat posed by US-backed stablecoins, which could undermine the euro and disrupt the traditional banking system, according to a senior official.

ECB executive board member Fabio Panetta highlighted the urgency of introducing a digital euro during a speech at the University of Zurich on Monday. He pointed to US President Donald Trump's recent executive order on digital assets, which encourages the development of stablecoins.

“The digital euro is a priority for the ECB because, without it, European banks will lose their role as intermediaries in transactions," Cipollone said.

“The issue is the global expansion of stablecoins which will displace euro-denominated transactions and weaken the banking sector's power.”

The move to prioritize the digital euro comes amid growing concerns among European policymakers about the impact of stablecoins, which are pegged to fiat currencies like the US dollar and are designed to offer a stable store of value.

The ECB has previously warned that stablecoins could pose risks to financial stability and the monetary system if they are not properly regulated.

A digital euro would provide consumers with a safe and regulated way to make digital payments, while also ensuring stability by being integrated with the existing banking infrastructure, Panetta said.

Unlike dollar-pegged stablecoins, which operate outside of banks, the digital euro would allow users to deposit a limited number of euros into digital wallets for daily transactions.

However, the introduction of a digital euro also faces several challenges, including the need for a comprehensive regulatory framework, consumer and business adoption, and the development of a secure and scalable technical infrastructure, Panetta noted.

Trump's executive order explicitly rules out a US central bank digital currency (CBDC), saying it could pose a risk to financial stability and personal privacy.

Instead, the administration is focusing on private-sector innovation and regulatory clarity to facilitate the growth of stablecoins.

As the EU deliberates over the introduction of a digital euro, stablecoins have been rapidly gaining ground in the digital asset space.

The total market capitalization of stablecoins recently hit an all-time high of $213 billion, with Tether (USDT) alone accounting for about $140 billion.

The fast adoption of stablecoins underscores the growing demand for digital dollars in international trade and cross-border payments, according to Panetta.

“The success of the digital euro will depend on striking the right balance between innovation, regulation and stability,” he said.

“The ECB will be rolling out pilots and refining its framework to stay relevant in the digital economy.”

The EU must now act decisively to prevent the dollar from solidifying its dominance in the digital financial landscape, Panetta added.