Digital Euro: is it able to compete with stablecoins?
As USD-backed stablecoins increase their dominance and are being adopted more widely across regions and for various utilities, the Euro, the single currency of Europe, could be threatened in its position as one of the most reliable global currencies.
Therefore, Europe is now trying to prepare a digital Euro to counter the growing power of USD-backed stablecoins. Still, Europe maintains a very conservative attitude toward cryptocurrency and its ecosystem. So, the digital Euro will almost certainly be a CBDC (Central Bank Digital Currency).
The ECB (European Central Bank) has been preparing its own digital euro (CBDC) since October 2023. The preparation phase launched on October 18, 2023. Based on some sources, progress is currently in the phase of finalizing the rulebook and infrastructure.
Clearly, there are both strengths and weaknesses to this centralized digital Euro, similar to the pattern we may see with the Chinese CBDC.
This digital Euro will be backed by the ECB, so it will be a stable currency with a high degree of trust. It may also have a low risk of regulatory uncertainty and could theoretically be easily integrated with legacy systems like payment systems.
However, it also contains some potential weaknesses. Even though the ECB tries to emphasize its privacy-protecting design, it is inherently a centralized currency. Much debate is still ongoing about the privacy issue, because the ECB and governments could restrict transactions based on their own judgment via a centralized blockchain network.
Furthermore, the CBDC may not be able to keep pace with the rapid development of blockchain and stablecoins. While a CBDC could provide high speed based on a centralized, efficient network, it is not clear whether it could handle all the complexities of blockchain transactions quickly and cost-effectively.
Another concern is the possibility of the CBDC's limited adoption. USD-backed stablecoins are already widely spread and used in many areas like global payments, trading, and shopping. It is highly likely the digital euro may be used only in Europe, which would be a disadvantage for long-term monitoring.
Finally, if users hold Euros on their own mobile phones or other digital devices, it could dry up the liquidity of Europe's commercial banks. If so, the ECB would need to monitor and manage this other critical issue with a high level of concern.
This post was also published on Medium on March 21, 2025, by the same author.
Posted Using INLEO