- European Central Bank president urges swift digital euro legislation.
- Concerns raised about financial stability and monetary sovereignty amid US stablecoin expansion.
- Main benefits proposed for the digital euro include free digital payments and offline payment capability.
- Estimated costs for banks could reach $19.5 billion across Europe and $950 million in Italy alone.
- Political support for the digital euro faces more challenges after recent elections.
Christine Lagarde, president of the European Central Bank (ECB), called on EU lawmakers to quickly advance legislation needed for launching a digital euro. She spoke to members of the European Parliament, citing concerns about maintaining the region’s monetary sovereignty as the United States moves quickly in expanding stablecoin regulations.
Lagarde outlined three main advantages of the European central bank digital currency (CBDC): a free-of-charge digital payment service, consistent digital payment access in all EU countries, and the option for digital payments to work offline. She highlighted the urgency by pointing to recent U.S. executive actions on stablecoins and the pace of American digital currency initiatives.
She said to lawmakers, “this debate however passionate – however likely to raise concern or fears – [should] move fast, because we will all bear a responsibility in the face of historical development if this project is not at least put for debate in front of you in short order.” Lagarde linked the urgency to both monetary sovereignty and the potential impact foreign stablecoins could have on the EU’s financial system and sovereign debt.
Potential risks of deposits leaving EU banks for stablecoins—cryptocurrencies tied to other assets, such as the U.S. dollar—could threaten financial stability, according to Lagarde. She referenced the EU’s Markets in Crypto-Assets Regulation (MiCAR), which provides safeguards against foreign stablecoins, saying it is the first line of defense, with the digital euro acting as a second layer.
Higher U.S. interest rates might draw European users to dollar-pegged stablecoins, Lagarde suggested. However, MiCAR rules ban European providers from offering interest on stablecoins, though some individuals might try to bypass this through decentralized finance (DeFi) or by using offshore accounts.
Members of the European Parliament also questioned the potential cost of implementing the digital euro. According to a recent PwC report, the cost for European banks could reach $19.5 billion. The Italian Banking Association estimated expenses of about $950 million for Italian banks. Lagarde responded that she could not verify those figures due to a lack of transparent methodology, but acknowledged the concerns.
Previously, before the last European elections, approval of digital euro legislation seemed likely. However, the political environment has since shifted, including the departure of the lawmaker who led the project. While there is still some legislative support, more legislators question the project compared to the period before June 2024.
Despite these uncertainties, Lagarde continues to press for action, emphasizing both the economic and strategic reasons for moving ahead with the digital euro initiative.
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