Euro Zone Banks Advocate for Digital Euro

FRANKFURT (Reuters) – Euro zone banks need a digital euro to respond to U.S. President Donald Trump’s push to promote stablecoins, a type of cryptocurrency typically pegged to the U.S. dollar, European Central Bank board member Piero Cipollone said on Friday.

Trump stated he would “promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide” as part of a broader crypto strategy outlined in an executive order issued on Thursday.

Cipollone emphasized that this could entice more customers away from banks and strengthen the argument for the ECB to launch its own digital currency.

> “I guess the key word here (in Trump’s executive order) is worldwide,” Cipollone told a conference in Frankfurt. “This solution, you all know, further disintermediates banks as they lose fees, they lose clients…That’s why we need a digital euro.”

Stablecoins resemble money market funds, providing exposure to short-term interest rates tied to an official currency, usually the U.S. dollar. Conversely, a digital euro would be an online wallet backed by the ECB but managed by financial institutions like banks.

This would enable individuals, including those without a bank account, to make payments. However, holdings might be capped at a few thousand euros and would not earn interest.

There are concerns from banks that a digital euro could deplete their reserves as customers might transfer cash into a safer, ECB-backed wallet. The euro zone’s central bank is currently testing the functionality of a digital euro but will only decide on a launch after legislative approval from European lawmakers.

Moreover, Trump’s executive order has prohibited the Federal Reserve from issuing its central bank digital currency (CBDC).

Countries like Nigeria, Jamaica, and the Bahamas have already implemented digital currencies, with 44 other nations, including Russia, China, Australia, and Brazil, in pilot phases according to the Atlantic Council think tank.