FRANKFURT, Jan 24 (Reuters) – The European Central Bank (ECB) believes a digital euro is essential to counter the potential impact of former U.S. President Donald Trump’s plans to promote stablecoins. Speaking on Friday, ECB board member Piero Cipollone highlighted this need, stating it was crucial for the euro zone banking system.
Trump’s recent executive order outlined a strategy to “promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide.” This initiative, according to Cipollone, could draw customers away from traditional banks, strengthening the case for the ECB to launch its own digital currency.
“I guess the key word here (in Trump’s executive order) is worldwide,” Cipollone remarked at a conference in Frankfurt. “This solution, you all know, further disintermediates banks as they lose fees, they lose clients…That’s why we need a digital euro.”
Stablecoins, similar to money market funds, offer exposure to short-term interest rates in an official currency, typically the U.S. dollar.
The proposed digital euro would function as an online wallet, guaranteed by the ECB but operated by companies like banks. It would facilitate payments even for those without bank accounts, with holdings possibly capped and non-remunerated.
Banks have raised concerns that a digital euro could lead to a mass transfer of funds, from the banking sector to ECB-guaranteed digital wallets.
The ECB is currently in the experimental phase, examining the practical aspects of a digital euro. The final decision to launch will depend on the approval of European lawmakers.
Trump’s executive order also placed a prohibition on the Federal Reserve issuing its own central bank digital currency (CBDC).
Digital currencies are already in use in countries such as Nigeria, Jamaica, and the Bahamas. Another 44 countries, including Russia, China, Australia and Brazil, are conducting pilot programs, according to the Atlantic Council think tank.
