EU Accelerates Digital Euro Due to US Stablecoin Legislation

Cash still rustles and coins jingle in cash registers and wallets, but increasingly quieter. Cards, mobile phones, and various applications have taken over daily payments, prompting many to call for the ‘end of cash’ and a transition to digital currencies. While citizens have mixed opinions about the digital euro and there is less and less paper money in circulation, anxiety is growing in the Union that they might be left without their own horse in the digital cash race.

The US Congress recently passed the Genius Act, a historic law regulating the $288 billion stablecoin market, which is entirely tied to the dollar. These are digital tokens (stablecoins) whose value is pegged to a fiat currency and backed by reserves such as government bonds. China has already made significant progress with its digital yuan, while Europe is still weighing options, shuffling papers, and forming working groups. However, the US move and the speed with which they pushed through the stablecoin law have alarmed many on the Old Continent, turning the idea of a digital euro from a strategic project into a race against time, as the competitiveness of the digital euro in the new digital world is at stake.

Do We Need a Digital Euro

The European Central Bank has been exploring the possibility of creating a digital euro for years, a means of payment that would be free and universally accessible in the eurozone. Proponents argue that this would provide citizens with a reliable alternative at a time when cash is losing importance, while simultaneously strengthening the euro’s position on the global stage.

However, many would agree that ‘cash is king.’ Cash has been and remains the simplest yet most private form of payment. You do not need a bank account, a mobile phone, an application, a battery, or electricity. No one tracks what you bought at a kiosk or store, and that privacy is cherished by many. However, they say that the decline in cash payments is drastic. From 2019 to 2024, the share of cash in the number of transactions in the eurozone has fallen from 68% to 40%.

The problem is that European solutions are not filling the gap, but rather American card companies and global applications.

– Europe cannot afford to depend on foreign payment systems – says Piero Cipollone from the ECB. Because if monetary everyday life is left to private networks and tech giants, the euro loses relevance, and the Union loses sovereignty, he adds.

However, following the US move, concerns are rising that a dollar-dominated stablecoin market could undermine the European currency. Cipollone warned back in April that US policy could lead to ‘a flight of deposits from the eurozone to the US’ and further strengthen the dollar in cross-border payments. Major crypto companies Circle and Tether already hold the majority of the stablecoin market, while American banks like Citigroup and JPMorgan are considering issuing their own digital tokens.

On the European side, there are several stable token projects linked to the euro, but the largest among them, Circle’s euro stablecoin, is worth only about $225 million. Therefore, a digital euro issued by the ECB itself would be both a political and technological message that Europe intends to stay in the game.

How Would the Digital Euro Work?

Citizens would receive a digital wallet, through a bank or public application. Payments would be instant, free, and possible even offline, in case of power or internet outages. The ECB promises privacy protection: offline transactions would be completely anonymous, while online payments would have ‘a high degree of privacy.’ One digital euro would, of course, always be worth one physical euro.

It sounds promising, but with limitations. There would be limits on the amount in digital euros to prevent mass withdrawals from banks. Because banks, let’s be honest, are the biggest skeptics here: if citizens start saving in digital euros, what will happen to deposits?

Euro on the Blockchain?

The biggest shift in discussions occurred recently: the EU is seriously considering that the digital euro be built on public blockchains like Ethereum or Solana, rather than on a closed infrastructure similar to the Chinese model. The advantage would be global accessibility; the digital euro could be used anywhere, like stable cryptocurrencies. The downside? Transparency: on public networks, transactions are generally visible to everyone. And European citizens may not look kindly on a central bank ‘watching over their shoulder,’ even if it swears it does not.

Cipollone openly warns that without a digital euro, European deposits could drift towards American stablecoins, further strengthening dollar dominance. Goldman Sachs concluded similarly in a recent report; without a public digital payment solution, the euro loses liquidity, and European merchants and tradespeople become hostages of private and foreign networks.

But there are also real objections. Why would citizens switch to a digital euro if they already have cards and applications that work perfectly? How much will offline payments even be used? And will all this just be an expensive infrastructure that is used sporadically?

Ultimately, the digital euro will certainly not replace the dollar as the world’s reserve currency. That is not its goal. But in Europe, it could be important as a public, secure, and free alternative to private systems. It can ensure that citizens still have a choice, and the Union retains at least a portion of monetary autonomy. However, all this raises further questions. Will the digital euro become a part of everyday life, or will it remain just a technological project that few use? This will depend less on the ECB and more on the citizens. Because if people continue to pay with cards or mobile phones without thinking, the whole story could remain yet another proof that politics sometimes creates solutions for problems that citizens do not actually feel.