In a recent statement, European Central Bank (ECB) board member Piero Cipollone stressed the need for euro zone banks to adopt the digital euro in lithe of US President Donald Trump’s initiative to promote Stablecoins.
These cryptocurrencies, pegged to the US dollar, are part of a broader strategy set out by Donald Trump in executive order released last Thursday.
Stablecoins vs digital euro
Cipollone expressed concern that Trump is focused on supporting the development of dollar-backed stablecoins digital currency.
“The key word here on the Trump board is ‘worldwide,'” Cipollone noted at a conference in Frankfurt. He noted that this push for global StableCoin adoption will be exacerbated by bank disappointment, leading to loss of fees and customers.
StableCoins work similarly to money market funds, providing exposure to short-term interest rates in stable official currencymost often US dollar. In contrast, the digital euro would serve as an online wallet backed by the ECB but operated by financial institutions such as banks.
This digital currency would enable people, including those without bank accounts, to make payments easily. However, there may be share limits, probably confined to a few thousand euros, and these holdings will not be exposed to interest.
The potential of the digital euro to exhaust liquidity from cash reserves
Reuters Reports Concerns that have also been raised by banks regarding the potential impact of the digital euro on their liquidity. There is concern that customers may transfer funds to an ECB-backed wallet, thereby depleting their cash reserves.
The ECB is currently experimenting with practical applications of the digital euro, but the final decision to launch it will depend on the approval of the relevant regulations by European lawmakers.
In a significant move, Trump’s executive order also precludes the Federal Reserve from issuing its own Central bank digital currency (CBDC). The directive follows a broader trend, with countries such as Nigeria, Jamaica and the Bahamas already launching their own digital currencies.
Additionally, 44 other nations, including Russia, China, Australia and Brazil, are running pilot programs for digital currencies, according to the Atlantic Council think tank.
Nearby, the push for a digital euro is becoming increasingly significant, especially in the context of competitive pressure from Stablecoins and other digital assets in the European Union.
The ECB’s decision to pursue a digital euro could significantly transform the banking landscape in Europe, ensuring it remains increasingly competitive digital economy.
As of writing, the total market capitalization of digital assets is $3.52 trillion, of which Stablecoins has captured a portion of $215 billion, according to Defillama data.
Featured image from Bloomberg, chart from TradingView.com
