The European Central Bank’s (ECB) Digital Move: Digital Euro Initiative Against Stablecoins
The ECB has made the Digital Euro project a strategic priority in order to keep pace with the requirements of the digital financial age and to provide the euro area with an efficient, reliable and innovative means of payment and to maintain the euro’s monetary sovereignty.
The Digital Euro project aims to provide a publicly backed digital alternative to the proliferation of stablecoin projects, especially from the private sector. The project aims to establish a secure, accessible and innovative digital payment system within the borders of the European Union and is considered as a strategic move that could have an impact on the financial system in the medium and long term.
The Potential Impact of the Digital Euro on Stablecoin Projects
The development of the digital euro has the potential to create both direct competitive pressure and indirect regulatory pressure on stablecoin projects. Although stablecoin projects offer flexibility in digital payments, especially with their structures pegged to fiat currencies such as the US dollar, they are considered by central banks as a risk factor for financial stability.
The ECB-backed Digital Euro could reduce the demand for stablecoins in the European market by offering a fully regulated, central bank-secured alternative. In particular, euro-denominated stablecoin projects such as EURC and EURS may lose their appeal in the face of digital versions of official government-backed currencies. In addition, with the launch of the Digital Euro, the supervision and reserve requirements for stablecoin projects under the MiCA (Markets in Crypto-Assets) regulation are likely to tighten further. This will impose new obligations on the liquidity structures, reserve systems and operational sustainability of stablecoin issuers.
However, this is not only a threat to stablecoin projects, but also an opportunity to innovate. Especially in decentralized finance applications such as Web3 and DeFi, stablecoin projects still play an important role and the scope of the Digital Euro in this area remains limited.
Current Status and Scope of the Digital Euro Project
In 2021, the ECB moved the Digital Euro project into a research phase and completed this phase in October 2023. In June 2024, the project moved to the second phase, defined as the “preparatory phase”. This phase includes testing the technological infrastructure, establishing the regulatory framework and developing pilot applications:
- Technological Tests: Security, scalability and internet-independent operability of infrastructure systems are tested.
- Regulatory Alignment: Determining legal status across the European Union, ensuring alignment with consumer rights and AML/CFT (anti-money laundering/combating the financing of terrorism) policies, and assessing scenarios for whether the Digital Euro will be offered directly by the central bank or through intermediary commercial banks.
- Pilot Projects: Limited testing has been initiated in countries such as Italy, Germany and the Netherlands.
This phase is planned to last until the end of 2025 and the ECB is expected to decide whether to launch the Digital Euro in 2026.
Potential Use Cases of the Digital Euro Project
The Digital Euro is initially intended to be used by individuals, small businesses and public service providers, with a focus on retail use. In this context, the short-term objectives of the Digital Euro project can be summarized as follows:
- In-Store and E-commerce Payments: Digital Euro will be available through POS devices and mobile applications.
- P2P Money Transfers: Fast and direct sending of money between individuals.
- Public Payments: Digital distribution of public transfers such as tax refunds and social benefits.
Medium and long-term goals are:
- Offline Use: Ability to make payments without an internet connection with technologies such as NFC.
- Cross-Border Payments: Low-cost and fast money transfers outside the euro area.
- Financial Inclusion: Including unbanked individuals in the digital financial system.
With the Digital Euro project, the ECB does not intend to abolish cash, but rather to design it as a publicly backed complementary means of payment in a digitized economy.
Overall Assessment and Forecast
The Digital Euro project is a multi-dimensional initiative that aims to modernize Europe’s financial infrastructure and will shape the future of central bank digital currencies (CBDCs). The competition and regulatory pressure on stablecoin projects will reshape the public-private balance in the digital asset market.
Although the final launch date has not yet been announced, the steps taken and the scope of the pilots show that the ECB is committed to the project. With the launch of the Digital Euro, the position of stablecoin projects in Europe is likely to undergo a significant transformation. In this context, the next two-year pilot period will be a defining period not only for Europe but also for the global stablecoin market.
Disclaimer
This content has been prepared by the Darkex Research Team for informational purposes only. It does not constitute investment advice. All risks and responsibilities arising from your investment decisions are solely your own.
