A Digital Euro Anchors Financial Stability in a Fractured World

The European Central Bank (ECB) has emphasized the critical role of a digital euro in maintaining financial stability during major disruptions, a position underscored by recent developments in central bank digital currency (CBDC) and instant payment systems (IPS) research. According to a 2024 paper by the Bank for International Settlements (BIS), both retail CBDC and IPS are essential tools for central banks to advance digital payments, promote innovation, and enhance the safety and efficiency of the financial sector. The ECB is reportedly on track to launch a digital euro by the second half of the 2020s, potentially benefiting over 350 million eurozone residents. This initiative aligns with global trends, as nations like Brazil and India have already made significant strides in implementing both CBDC and IPS systems. A survey cited in the same report revealed that 48% of respondents anticipate launching a CBDC within the next five years, highlighting the growing consensus on the necessity of digital currency infrastructure.

A well-designed CBDC serves as a public form of digital money, created by the central bank to address financial exclusion and protect monetary sovereignty. Unlike private payment systems, a CBDC carries no risk of insolvency and can be used by all citizens, regardless of their access to traditional banking services. It supports offline transactions, a crucial feature during events such as the 2025 blackout across Spain and Portugal, where digital infrastructure failed. Experts argue that CBDCs can act as a resilient monetary anchor in a rapidly digitizing economy. By providing a central-bank-backed payment system, CBDCs ensure that public money remains competitive with private platforms and maintains its role as a stabilizing force, even as the financial landscape becomes increasingly dominated by non-state actors.

The complementarity between CBDC and IPS is evident in their shared objectives of enhancing payment efficiency, promoting financial inclusion, and supporting innovation. Both systems facilitate low-cost, real-time transactions and can be developed using public infrastructure while allowing private innovation through payment service providers (PSPs). However, while IPS relies heavily on digital connectivity, a CBDC’s offline functionality offers a distinct advantage in scenarios where infrastructure is compromised. This makes it particularly valuable in regions with limited connectivity or during large-scale disruptions. Additionally, a programmable CBDC can support diverse use cases, such as the direct disbursement of welfare or stimulus payments to unbanked populations, reinforcing its role in building a more inclusive and resilient digital financial ecosystem.

Central banks globally are increasingly viewing CBDCs as a means to safeguard monetary sovereignty, particularly in the face of growing dominance by private digital platforms. As economies become more digitized, the risk of losing control over monetary infrastructure rises, and public money must remain relevant to maintain stability. The BIS paper notes that while CBDC is not a panacea, it can serve as a critical component of a broader policy framework aimed at preserving control over the monetary system. By anchoring the digital economy with public money, central banks can mitigate the risks associated with the unchecked growth of private digital currencies and maintain the necessary oversight to protect public interests.

Looking ahead, central banks are keenly aware of the need to future-proof their financial systems. While the pace of technological change presents challenges, the underlying goal of stability remains a priority. Innovations such as tokenized public money bring a level of control into the system, making it more resilient to shocks and capable of adapting to new economic realities. A well-designed CBDC, whether used independently or in tandem with an IPS, provides the security and flexibility required for a dynamic digital financial system. As the ECB moves closer to launching the digital euro, it continues to position the initiative not merely as a response to technological trends but as a strategic step toward ensuring financial resilience and sovereignty in an increasingly interconnected global economy.

Source:

[1] Central bank digital currencies and fast payment systems: rivals or partners? Aurazo, Banka et al. for BIS/World Bank, 2024, https://www.bis.org/publ/bppdf/bispap151.htm

[2] ECB digital euro project, https://www.ecb.europa.eu/euro/digital_euro/html/index.en.html

[3] CBDCs: it’s time for action. Why central banks should take the next step. G+D & Digital Monetary Institute/OMFIF, 2025, GD-OMFIF-2025-CBDCs-Report.pdf