ECB Promotes Digital Euro to Counter US Dollar-Pegged Stablecoins

The European Central Bank (ECB) is actively promoting the development of a digital euro to counter the growing influence of US dollar-pegged stablecoins. This initiative aims to fundamentally alter how Europeans use currency and impact bank deposits. The digital euro project, part of the broader Central Bank Digital Currency (CBDC) initiative, has not yet been officially approved. However, the ECB has begun studying its potential impact on the existing asset structure within the euro area, which includes both banknotes and bank deposits.

According to the ECB's estimates, for every 10 euros of digital euro issued, 5 euros of circulating banknotes could be replaced. Additionally, for every 10 euros of digital euro issued, there would be a corresponding loss of 3 euros in bank deposits. In an optimistic scenario where European citizens widely accept the digital euro, it could potentially replace 256 billion euros of banknotes. However, even in this best-case scenario, the scale of digital euro usage would remain limited compared to the current circulation of euro banknotes, which exceeds 15.6 trillion euros.

Europe's push for a digital euro is driven by the need to counter the rise of stablecoins pegged to the US dollar and other cryptocurrencies. ECB Executive Board member Chiara Pronzini has highlighted that the digital euro will help curb the expansion of these bankless solutions, which is a key reason for its development. The ECB's efforts are part of a broader strategy to maintain the euro's relevance and stability in an increasingly digital financial landscape.