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As the US embraces stablecoins to bolster the dollar’s global reach, Europe doubles down on the digital euro to defend its monetary sovereignty, revealing a growing transatlantic divide in the future of digital money.
Image Source: Getty
European Central Bank (ECB) President Christine Lagarde has renewed calls for swift legislative action on the digital euro, pressing the European Parliament to move with urgency. Her remarks come amid rising geopolitical tension, particularly after US President Donald Trump’s executive order backing stablecoins, which Lagarde cited as a clear signal of the European Union’s (EU) fragility in defending its monetary sovereignty.
Prior to the European elections last year, the passage of legislation enabling the digital euro appeared largely uncontroversial. However, shifting political dynamics have since complicated its trajectory. The departure of the parliamentary rapporteur for the digital euro, citing a lack of conviction in the project, has left a vacuum in political momentum, threatening delays at a pivotal juncture.
Lagarde reiterated a critical concern regarding the potential large-scale migration of deposits from traditional banking institutions to stablecoins, cautioning that such a development would have implications beyond technical disruption and could undermine the foundational stability of the financial system. She argued that this shift poses a direct threat to the transmission mechanisms of monetary policy and, by extension, to the central bank’s ability to maintain economic stability. While acknowledging the role of innovation in financial markets, Lagarde emphasised the importance of regulatory control in preserving monetary sovereignty. In this context, the European Union’s Markets in Crypto-Assets Regulation (MiCA) serves as a structural safeguard, establishing clear limitations on the circulation and influence of foreign-backed stablecoins within the EU. Lagarde characterised the MiCA framework as the initial line of defence for protecting the eurozone’s monetary integrity, with the digital euro positioned as a complementary instrument to ensure financial sovereignty in the face of external pressures.
The European Union’s Markets in Crypto-Assets Regulation (MiCA) serves as a structural safeguard, establishing clear limitations on the circulation and influence of foreign-backed stablecoins within the EU.
Public attitudes toward the digital euro reveal deeper currents beneath the surface of economic behaviour. A recent YouGov survey shows that support for a Central Bank Digital Currency (CBDC) is unexpectedly growing in countries where cash still holds cultural weight. This seemingly paradoxical trend suggests that many people do not view CBDCs as a break from the past, but rather as a continuation. The survey identifies online shopping as the leading use case for the digital euro, with in-store payments close behind, perhaps signalling a broader transformation. As geopolitical and technological forces intersect, the future of the digital euro will hinge not just on technical infrastructure but on the strength of political commitment and the capacity of society to envision and support meaningful change.
A provision in the executive order on digital assets issued by US President Donald Trump highlighted the strategic priority of “promoting and protecting the sovereignty of the US dollar,” particularly through the global advancement of lawful, dollar-backed stablecoins. In response to these developments, Piero Cipollone, member of the Executive Board of the ECB, has emphasised the increasing urgency perceived by European policymakers to advance the design and implementation of the digital euro as a CBDC. Cipollone argues that the growing international presence and influence of US dollar-denominated stablecoins is now regarded as a potential threat to the euro’s monetary sovereignty. This perceived challenge has reinforced the rationale for a sovereign European digital currency, positioned as a strategic instrument to preserve the eurozone’s autonomy within the evolving global financial architecture.
Following a recent meeting of the European Union finance ministers, Eurogroup President Paschal Donohoe announced the resumption and ongoing advancement of legislative efforts related to the digital euro, the European Union’s proposed CBDC. These efforts had previously been delayed due to the 2024 European Parliament elections, which disrupted the legislative timeline.
The digital euro initiative is primarily conceptualised as a retail-oriented CBDC, intended for use by the general public as a secure and accessible form of digital legal tender. Concurrently, there has been a growing body of interest in the development of a wholesale CBDC (wCBDC), aimed at enhancing institutional financial infrastructure, particularly in the areas of interbank settlement and cross-border transactions. In 2024, the ECB and a consortium of 64 financial institutions conducted a series of experimental trials to assess the viability of distributed ledger technology (DLT) for wholesale settlement processes. Building upon the insights derived from these experiments, the ECB announced in early 2025 the introduction of an interim framework to facilitate wholesale settlement, with the strategic objective of implementing a fully operational wholesale CBDC in the longer term.
The Trump administration’s strategic emphasis on promoting the global adoption of US dollar-denominated stablecoins positioned as a means to reinforce the international role of the US dollar has been identified by European policymakers as a significant factor reinvigorating legislative efforts within the EU.
Recent geopolitical developments have amplified the sense of urgency surrounding the digital euro project. In particular, the Trump administration’s strategic emphasis on promoting the global adoption of US dollar-denominated stablecoins positioned as a means to reinforce the international role of the US dollar has been identified by European policymakers as a significant factor reinvigorating legislative efforts within the EU. The strategic rationale underpinning the digital euro initiative transcends the objective of technological modernisation. It embodies a broader policy ambition to strengthen the European Union’s monetary and financial autonomy in an increasingly interconnected and competitive global landscape. The imposition of new tariffs by President Trump in April 2025 has further reinforced the EU’s determination to cultivate domestically governed digital payment infrastructures, thereby mitigating systemic dependence on third-country platforms. Within this context, the digital euro is progressively being conceptualised as both a defensive mechanism to safeguard economic sovereignty and a proactive instrument for asserting the EU’s position in the evolving architecture of the global financial system.
The EU’s MiCA establishes protective measures, including restrictions on the issuance and circulation of foreign-denominated stablecoins and confers intervention powers to regulatory authorities in cases where monetary sovereignty may be compromised, and structural vulnerabilities persist. Chief among these is the longstanding reliance of Europe’s retail payment infrastructure on non-European entities, notably firms such as Visa and Mastercard, a dependence that the ECB has consistently regarded as a strategic risk to the region’s financial autonomy.
The Trump administration has viewed stablecoins through a strategic lens, portraying them as a vehicle for public–private collaboration capable of simultaneously driving financial innovation and reinforcing the global role of the US dollar. The European Union, however, has adopted a more cautious stance, identifying stablecoins as a potential source of systemic risk, particularly with regard to monetary sovereignty and regulatory accountability. This divergence in approach has become a key driver of the ECB's pursuit of a digital euro.
For the ECB, the digital euro is not merely a response to technological change. It is a policy tool aimed at reasserting control over the architecture of retail payments in Europe. Its introduction is expected to significantly diminish, if not obviate, the role of privately issued stablecoins in day-to-day transactions. While the ECB also frames the digital euro as involving a form of public–private partnership, there is an important institutional distinction: participation by commercial banks would likely be mandatory, not market-driven. This reflects a more centralised vision of digital financial infrastructure, grounded in the belief that monetary stability and sovereignty cannot be outsourced to the private sector.
The design of the rollout emphasises ease of use, with no action required from merchants unless they prefer settlements in USDC rather than their local fiat currency.
Recent developments in the US further highlight the accelerating integration of stablecoins into mainstream commerce. Shopify, for instance, has enabled its merchants to accept payments in stablecoins through a partnership with Coinbase and Stripe. The design of the rollout emphasises ease of use, with no action required from merchants unless they prefer settlements in USDC rather than their local fiat currency. A particularly noteworthy aspect of this collaboration is the development of a smart contract-based “e-commerce payment protocol,” which aims to replicate the traditional two-step card payment process, authorisation followed by capture, within a blockchain-based framework.
This trend is not isolated. Several major technology firms, including Apple, Airbnb, Google, and X are reportedly exploring the integration of stablecoin capabilities into their payment systems. These early-stage discussions signal a broader shift: stablecoins are increasingly being viewed not as niche instruments, but as viable components of modern digital financial infrastructure.
What we are witnessing is a divergence in trajectories. While in the US, technology firms appear to be embracing stablecoins as tools for efficiency and innovation within commercial ecosystems, European regulators remain focused on the risks to monetary sovereignty and financial stability. This divergence underscores a fundamental tension between market-driven innovation and state-centric approaches to financial system design. The interplay between these competing paradigms is expected to play a critical role in shaping the trajectory of global regulatory frameworks and the competitive dynamics of the digital financial ecosystem in the years ahead.
Sauradeep Bag is an Associate Fellow at the Observer Research Foundation.
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Sauradeep is an Associate Fellow at the Centre for Security, Strategy, and Technology at the Observer Research Foundation. His experience spans the startup ecosystem, impact ...
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