European policymakers are accelerating work on a digital euro after Washington approved its first comprehensive framework for stablecoins. The US law, nicknamed the Genius Act, regulates a US$ 288 billion market dominated by dollar-backed tokens such as USDC and Tether. Brussels fears the move could tilt global payments further towards the dollar, eroding the euro’s role as a settlement and reserve currency.
The European Central Bank (ECB) has been exploring a central bank digital currency (CBDC) since 2020, but the political urgency has now shifted. Officials are now debating whether the euro token should be built on a public blockchain such as Ethereum or Solana, rather than a private ledger as initially planned. Advocates say a public chain could expand circulation beyond the eurozone, though concerns remain over privacy and traceability.
The ECB argues a digital euro would provide households and businesses with direct access to central bank money as cash use declines. Analysts warn that without it, Europeans may increasingly rely on US stablecoins, indirectly anchoring their domestic payments systems to the dollar. The moving of depoistd to America would, long term, increase dollar dominance in cross-border payments as well.
The debate is not just about sovereignty. Payments in Europe are still largely routed through Visa and Mastercard, both US companies. A digital euro could cut reliance on foreign intermediaries and reduce merchant fees, an issue flagged repeatedly by policymakers. For the EU, the digital euro also ties into a broader push for strategic autonomy in areas from energy to technology, ensuring critical infrastructure is not outsourced.
Global chessboard
The international backdrop makes the timing more delicate. China is already piloting its e-CNY across dozens of cities, while the UK is weighing a digital pound. A recent Atlantic Council report noted that more than 130 countries are now exploring CBDCs, collectively representing over 98% of global GDP. Without a digital euro, Brussels risks falling behind not just Washington and Beijing, but also smaller economies moving faster in the CBDC race.
Still, risks remain. Analysts note that if retail users shift deposits en masse to ECB-backed wallets, banks could face funding strains. Others worry about surveillance if digital euro transactions are not anonymised. The ECB has pledged to strike a balance by embedding privacy safeguards, but critics argue that public trust will hinge less on design and more on whether the currency is rolled out as a payments tool or as a vehicle of control.
