European officials are ramping up efforts to develop a digital euro in response to the passing of the Genius Act in the United States. This legislation, signed into law by President Donald Trump, imposes comprehensive regulations on the stablecoin market, totaling $288 billion. The new rules require issuers of dollar-pegged tokens to maintain full reserves in liquid assets, obtain licenses, and adhere to strict reporting standards. Proponents of the law argue that it enhances consumer protection while fostering innovation, a delicate balance that regulators had struggled to achieve previously.
The swift action taken by Washington has prompted European policymakers to accelerate their own plans for a digital euro. Previously progressing cautiously, officials are now considering running the digital euro on a public blockchain such as Ethereum or Solana. This marks a departure from earlier intentions to use a private ledger controlled by the European Central Bank. Proponents of a public blockchain argue that it could expand the euro’s reach beyond Europe, while critics raise concerns about transaction transparency and privacy issues.
The European Central Bank initiated the study of a digital euro in October 2021, viewing it as a central bank digital currency designed to complement cash and adapt to a digital economy. Additionally, the digital euro aims to ensure continued access to central bank money for Europeans and reduce reliance on foreign payment providers. Currently, international card networks handle the majority of eurozone payments, with non-European companies dominating a significant portion of transactions.
European officials are concerned that the US regulatory framework could increase demand for dollar-backed tokens, potentially weakening the euro’s role in cross-border payments. The choice between a private, ECB-controlled system and a public blockchain-based euro carries geopolitical significance. The former mirrors the Chinese central bank’s approach to the digital yuan, characterized by tight control, while the latter aligns with the model advocated by US private firms.
While the debate over the digital euro’s design continues, policymakers are exploring the potential benefits and risks of each option. The urgency to make a decision has heightened in response to the US stablecoin legislation. Ultimately, the choice between a private or public blockchain for the digital euro could shape the currency’s future role and influence beyond the European bloc.