The European Central Bank (ECB) has highlighted the need for a digital euro to address competition from dollar-backed stablecoins promoted by US President Donald Trump.
ECB board member Piero Cipollone underscored this point during a conference in Frankfurt, as reported by Reuters.
Trump’s stablecoin push
Trump recently issued an executive order outlining his vision for cryptocurrency, which includes promoting the global use of “lawful and legitimate dollar-backed stablecoins.”
Stablecoins are cryptocurrencies typically pegged to traditional currencies like the US dollar.
According to Trump, this strategy aims to bolster stablecoin adoption on a global scale, potentially reshaping the financial landscape.
ECB’s response to stablecoins
Cipollone argued that the promotion of stablecoins could further disintermediate banks, leading to reduced fees and a loss of customers.
This, he said, strengthens the case for the ECB to accelerate its plans for a digital euro.
“The key word here [in Trump’s executive order] is worldwide,” Cipollone stated.
“This solution further disintermediates banks as they lose fees and clients. That’s why we need a digital euro.”
How digital euro and stablecoins differ
Stablecoins function similarly to money market funds, offering exposure to short-term interest rates in currencies like the US dollar.
They are often used for cross-border payments and decentralized finance (DeFi) transactions.
In contrast, a digital euro would serve as an online wallet guaranteed by the ECB.
While banks or other companies would operate it, the wallet would allow individuals, including those without bank accounts, to make payments securely.
To address concerns over potential financial disruption, the ECB would likely impose caps on holdings, limiting them to a few thousand euros and ensuring they are non-interest bearing.
Eurozone banks’ concerns
Eurozone banks have raised concerns about the potential impact of a digital euro on their liquidity.
A shift of customer funds to ECB-backed wallets could lead to reduced deposits and impact bank operations.
Despite these concerns, the ECB continues to explore the technical and operational aspects of a digital euro.
A final decision on its rollout will only occur after European lawmakers approve the necessary legislation.
Trump’s stance on CBDCs
In addition to promoting stablecoins, Trump’s executive order prohibits the Federal Reserve from issuing its own central bank digital currency (CBDC).
This sets the U.S. apart from countries like China, which has been advancing its digital yuan project.
The debate over digital currencies reflects broader questions about the future of money, financial inclusion, and the balance of power between traditional banks and emerging technologies.
While stablecoins offer a market-driven alternative, a digital euro could ensure greater regulatory oversight and financial stability within the eurozone.
As both strategies unfold, the global financial ecosystem may witness significant shifts in how currencies are used and managed.
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