Is Digital Euro Too Little, Too Late?

As the U.S. greenlights stablecoin regulations, policymakers across the Atlantic are scrambling to make the digital euro a reality.

The EU has grave concerns that the proliferation of dollar-backed digital assets could ultimately threaten the trading bloc’s monetary sovereignty.

And in an interesting development, the Financial Times is reporting that this central bank digital currency could end up based on a major public blockchain such as Ethereum or Solana.

Make no mistake: this would be a huge vindication for either project. But it’s fair to say that the European Central Bank isn’t considering this out of passion for either network, but simply because it would expedite the digital euro’s launch.

Ethereum could be a compelling choice given how a slew of upgrades has driven down fees. The Proof-of-Stake chain also offers smart contract capabilities as standard, making it an ideal base for programmable money.

While proponents argue that Solana is a much faster and cheaper alternative, it has been dogged by a series of high-profile outages in recent years — some of which have lasted for many hours. Disruption that left millions of consumers unable to access their funds would make international news, and could ultimately spell disaster for the digital euro’s future.

The European Central Bank was quoted by the Financial Times as saying that centralized and decentralized technologies are being considered, and a concrete decision is yet to be made.

But aside from the technical intricacies, there’s a bigger theme at play: the EU is increasingly alone in pursuing a CBDC in the first place. Canada shelved its plans last year, with Australian policymakers deciding to focus on a wholesale digital asset instead. The Bank of England’s governor has admitted he is yet to be “convinced we need to create new forms of money.” And in a rather dramatic U-turn, Brazil announced its project, Drex, won’t be based on blockchain at all because of privacy and scalability issues.

The EU would do well to pay close attention to these concerns, especially considering that critics fear a digital euro could end up being used as a weapon of surveillance — or even a tool for controlling how the public spend their money. And given the bloc’s population now stands at 450 million across 27 member states, scalable infrastructure is essential. 

Another headache relates to research released earlier this year that shows “a substantial portion of consumers” aren’t even interested in using the digital euro, primarily because they feel well-served by current payment methods. It’s a damning indication that this CBDC doesn’t offer enough compelling advantages to fuel adoption — or at the very least, any perks have been explained clearly enough.

The stablecoin landscape has matured and evolved dramatically in the past few months, with the likes of Coinbase determined to make slick payments a key use case for digital assets. 

While stablecoins pegged to the euro do exist, they’re fairly underdeveloped at this stage — and don’t have a large market capitalization. But by the time the European Central Bank’s CBDC finally hits the market, all that might have changed.

Note: The opinions expressed in this column are those of the author and do not necessarily represent the views of FXCOINZ, its owners, or affiliates.