Euro's Digital Makeover: Can Europe Match the Pace of Dollar-Backed Innovation?

European Union policymakers are reconsidering the strategy for the digital euro in response to the U.S. passage of the GENIUS Act, a regulatory framework for the $288 billion stablecoin sector. The new U.S. law, which governs dollar-backed tokens such as Tether's USDT and Circle Internet Financial's USDC, has prompted concerns within the EU that dollar-pegged stablecoins could increase American dominance in cross-border transactions if the bloc does not expedite its digital euro initiatives [1].

Until recently, the European Central Bank (ECB) had prioritized a private, centrally controlled infrastructure for the digital euro, emphasizing privacy and security as key benefits. However, the U.S. legislation has influenced the EU’s stance, with some policymakers now considering the potential of decentralized blockchain networks like Ethereum and Solana. This shift aims to enable the euro to circulate more freely in global digital markets and compete with dollar-based digital assets [2].

The ECB has been assessing a digital euro for years, positioning it as a public alternative to private digital payment systems amid the declining use of cash. Yet the pace of U.S. developments has raised concerns about the outflow of euro deposits into dollar-denominated assets abroad. The digital euro initiative is also being influenced by broader regional and global trends, including China's pilot of its digital yuan and the U.K.’s consideration of a digital pound [1].

According to internal discussions, the ECB remains open to evaluating both centralized and decentralized technologies. This evaluation includes the potential for a blockchain-powered euro, which could play a critical role in maintaining the relevance of the euro in the evolving digital economy. Officials have emphasized the urgency of this decision as they seek to preserve monetary autonomy and ensure the euro's position in global finance [2].

A central bank-issued digital euro would have greater legitimacy and influence compared to existing euro-backed stablecoins such as Circle's EURC. While these stablecoins are already in use, a CBDC would provide a more robust and regulated alternative, reinforcing the ECB’s role in the digital financial ecosystem. The ECB has confirmed it is still in the evaluation phase, but the pace of U.S. regulatory action and the emergence of global digital currency initiatives are pushing Europe to accelerate its timeline.

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[1] U.S. Stablecoin Law Jolts EU Into Rethinking Digital Euro ... (https://www.coindesk.com/policy/2025/08/22/u-s-stablecoin-law-jolts-eu-into-rethinking-digital-euro-strategy-ft)

[2] U.S. Stablecoin Law Jolts EU Into Rethinking Digital Euro ... (https://finance.yahoo.com/news/u-stablecoin-law-jolts-eu-100448640.html)