Key Points
- The ECB sees Trump’s support for U.S. dollar-backed stablecoins as a catalyst for accelerating digital euro legislation.
- The European Commission proposed digital euro legislation in June 2023, but progress has been slow.
- Cipollone warns that spreading U.S. stablecoins in Europe could divert deposits to U.S. financial institutions.
- Many countries are progressing with central bank digital currencies (CBDCs), while Trump has blocked the Federal Reserve from launching one.
The European Central Bank (ECB) hopes that U.S. President Donald Trump’s backing of dollar-pegged cryptocurrencies will accelerate legislative approval for the digital euro. In an interview, ECB board member Piero Cipollone expressed this hope, highlighting how Trump’s stance could add urgency to the European Union’s efforts to establish its digital currency.
The ECB has positioned the digital euro as an alternative electronic payment system that does not rely on dominant U.S. providers such as Visa and PayPal. Cipollone pointed out that Trump’s endorsement of globally available stablecoins tied to the U.S. dollar would introduce another American-made payment tool, reinforcing the need for Europe to develop its digital alternative.
Although the European Commission proposed legislation for a digital euro in June 2023, progress has been slow due to skepticism from some lawmakers and banks. Cipollone remains optimistic that the EU’s Parliament and Council will finalize discussions before the summer, allowing the new regulations to be in place by November. This would align with the ECB’s scheduled vote on moving forward with the digital euro.
The increasing use of stablecoins as a payment method is a growing concern for European financial institutions. These digital assets, which offer exposure to short-term interest rates in an official currency, could shift deposits away from European banks to U.S. financial institutions if they gain widespread adoption in Europe. Cipollone warned that if Europeans begin using U.S. stablecoins for payments, deposits could be transferred out of Europe, potentially weakening the region’s banking sector.
European banks, however, are also wary of the digital euro, fearing that it could lead to deposit outflows as customers transfer funds to ECB-backed digital wallets. To mitigate this risk, the ECB has proposed capping digital euro holdings at a few thousand euros and ensuring they are not interest-bearing.
Globally, central bank digital currencies (CBDCs) are gaining traction. Countries such as Nigeria, Jamaica, and the Bahamas have already launched their digital currencies, while 44 others, including China, Russia, Australia, and Brazil, are conducting pilot programs. In contrast, Trump has prohibited the U.S. Federal Reserve from issuing its CBDC.
