Who controls Europe’s payments? The sovereign case for a Digital Euro

The digital euroThe digital euro promises to give European citizens a secure, publicly issued digital payment option that is universally accepted and free for basic transactions. Unlike the money in your bank account today, the digital euro would be a direct liability of the European Central Bank. That means it would not depend on a Commercial bank’s ability to lend or remain solvent. Instead, individuals would have greater control over their money, with the freedom to store digital euros in an app, mobile wallet, or physical card. is no longer just a possible new payment option. It is increasingly becoming essential to Europe’s strategic autonomy. The digital euro would enable Europe to reduce its dependence on foreign firms, regain control over critical payment infrastructure and provide a reliable alternative to risky dollar-backed digital currencies. Dollar-backed digital currencies are private digital versions of the US dollar. Unlike the proposed Digital Euro, they are issued by companies, not a Central Bank.

Europe’s payment system 

Today, the European payments landscape is dominated by US companies like Visa and Mastercard. More than two-thirds of card transactions in the euro area were settled through international payment schemes in the second half of 2023, skimming millions off European consumers and small businesses. Not only do these payment service providers charge hefty transaction fees, but foreign ownership leaves the EU’s payments infrastructure dangerously exposed to external political pressures. 

The growing challenge of stablecoins 

It’s not just about payment schemes. You may remember Facebook’s attempt to launch Libra in 2019, a privately controlled digital currency that caused global alarm over data privacy and risks to financial stability. Back then, civil society pushed back and regulators intervened, blocking its launch and reinforcing the idea that monetary control should remain in public hands. But today the political environment has changed and a US-backed challenge to traditional currencies has emerged. This time it’s stablecoins threatening to disrupt the monetary system. 

Stablecoins are digital currencies pegged to traditional assets, most commonly the U.S. dollar, offering a more reliable alternative to volatile cryptocurrencies. However, they are not quite as safe as they may seem. Unlike cash, which is directly backed by a central bank, stablecoins are dependent upon the financial health of issuing firms. The reserves that underpin these currencies are typically invested in interest-bearing assets, generating profits for issuers but also exposing holders to risks if those reserves are mismanaged or become illiquid. The collapse of the TerraUSD stablecoin in 2022 demonstrated the risks of sharp devaluation when confidence in the issuing firm fails. At their core, stablecoins are just IOUs from firms, which like any business, can fail, and leave holders empty-handed. Owning a dollar-backed stablecoin does not guarantee you a dollar. 

Trump’s crypto backing 

But the U.S.’s current administration has embraced these digital assets, and has recently turbocharged the stablecoin marketplace. In late January, Donald Trump signed an executive order deregulating cryptocurrencies and removing barriers to privately issued, dollar-backed stablecoins. Soon after, the U.S. government went a step further, signing an executive order to establish a strategic reserve of cryptocurrencies. Rather than developing a publicly backed U.S. central bank digital currency (CBDC) with clear regulatory oversight, Trump is supporting the unchecked growth of private stablecoins. The message from Washington is clear: its time for the financial industry to take private digital assets seriously. Banks and fintechs responded, rushing to issue their own stablecoins backed by the U.S. dollar. These are major financial institutions such as Bank of America, Standard Chartered, PayPal, and Stripe, all preparing to issue stablecoins and profit from a rapidly expanding market.  

A threat to Europe’s monetary sovereignty

These non-European issuers will make stablecoins available in the eurozone. Meanwhile, the U.S. Congress is working to legitimise these digital dollars under the GENIUS Act and STABLE Act. These bills fail to introduce proper safeguards, prioritising industry interest over financial stability. But by helping to normalise stablecoins, they increase the risk of dollar-backed digital currencies embedding themselves into Europe’s financial system. This threatens to expand foreign control over Europe’s payments market and risks increasing dependence on U.S. financial giants for digital transactions. 

And transfers in stablecoins are surging. They reached $27.6 trillion in 2024, surpassing Visa and Mastercard, largely due to cross-border payments and crypto trading.

The U.S. administration’s support for crypto may also reignite Big Tech’s ambitions to enter the race. With their vast resources and global reach, companies like X, Meta and Apple could successfully launch dollar-backed stablecoins in Europe. Allowing these data-rich Big tech firms to control a significant share of transactions and deposits raises the same concerns as Libra in 2019. In a less stable international environment, concerns over data privacy and monetary control become more prescient.

In fact, the widespread use of stablecoins in European transactions would undermine the ECB’s control over monetary policy. Dollar-backed digital currencies would circulate within the eurozone but remain beyond the ECB’s direct influence over monetary supply. In effect, a parallel currency, managed by the Federal Reserve, would be increasingly important for EU transactions.

A secure European alternative 

Digital currencies have arrived. With the rise of privately issued, dollar-backed stablecoins and foreign dominance over the European payments landscape, the urgency for a public European alternative has never been clearer. 

The Digital Euro is Brussels’ answer, designed to offer a secure, European-controlled alternative to foreign digital currency and payment service providers. The ECB is now rightfully framing the digital euro as a strategic necessity, to safeguard Europe’s critical payments infrastructure from foreign firms and risky digital currencies. If properly designed, the digital euro would be widely accessible and secure. Unlike stablecoins, it would be a direct liability of the ECB. It would provide a cheaper, publicly controlled alternative to foreign private payment providers and strengthen Europe’s monetary sovereignty. 

This is no longer just about convenience. The digital Euro is about sovereignty, security and economic resilience. It wouldn’t just empower citizens with greater control over their deposits and payments, it would also strengthen Europe’s position in a rapidly shifting international landscape. EU lawmakers must make progress on the Digital Euro before risky alternatives, mainly coming from abroad, become entrenched in the Union’s payment ecosystem. The EU’s financial sovereignty is at stake.

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Max Kretschmer, Finance Watch