Tensions With U.S. Underline Need for Digital Euro, Says ECB's CipolloneUpdate

By Paul HannonGrowing tensions between the U.S. and the European Union over trade and security underline the need for the eurozone to develop and adopt a digital euro, a senior official at the European Central Bank told lawmakers Tuesday.The EU has been troubled by President Trump's imposition of tariffs on imports from the bloc and what it perceives as a weakening of the trans-Atlantic military alliance.Speaking to lawmakers at the European Parliament, ECB executive board member Piero Cipollone said "recent international developments" underscore the risk of relying on foreign payment systems such as those provided by Visa and Mastercard to move money around the bloc."Europe cannot afford to rely excessively on foreign payment solutions," Cipollone said. "Doing so makes us dependent on the kindness of strangers in a context of heightened geopolitical tensions."The ECB estimates that international schemes accounted for 66% of all electronically initiated transactions conducted using cards in the first half of 2024.European governments have announced increases in defense spending to reduce their reliance on the U.S. in the event of a conflict with Russia. In the wake of its invasion of Ukraine, they also cut purchases of oil and gas from Russia and have been investing heavily to build up renewable sources of energy.Cipollone said it is necessary to take similar steps with payment systems."The urgency of preserving our autonomy in defence and energy is already extremely clear," he said. "But ensuring autonomy for essential services like daily payments is just as urgent. Without it, we are vulnerable to geopolitical threats and risk losing our monetary sovereignty."The ECB is in what it calls the "preparation phase" for launching a digital euro, and Cipollone said that is almost complete. He urged lawmakers to pass legislation that would allow the ECB to press ahead with the digital currency."The world of payments is changing fast, which is why it is crucial to move forward with the digital euro legislation now," he said. "Inaction could lead to a loss of control over our financial infrastructure."Cipollone told lawmakers that stablecoins backed by U.S. dollars represent a new threat to Europe's financial autonomy, since they are increasingly being accepted by businesses as a form of payment."Most recently, the measures taken by the new U.S. administration to promote crypto-assets and US dollar-backed stablecoins raise concerns for Europe's financial stability and strategic autonomy," he said.Stablecoins provide the backbone to the decentralized web of digital networks that comprise the crypto markets, functioning as digital dollars used widely to store cash or pay for purchases of other tokens.They aim to maintain a 1:1 exchange ratio with government-issued currencies, and store reserves in cash or cash-like assets such as Treasurys to keep the peg in place.China, Russia and some other countries have developed their own payments infrastructure to limit the ability of the U.S. to influence their behavior through actions that target their financial systems.Write to Paul Hannon at [email protected]