Banks in the eurozone need a digital euro to respond to U.S. President Donald Trump’s push to promote stablecoins, a type of cryptocurrency typically backed by the U.S. dollar, European Central Bank board member Piero Cipollone said on Friday.
Trump said he would “encourage the development and growth of legitimate and authentic stablecoins backed by the U.S. dollar worldwide” as part of a crypto strategy outlined in an executive order issued on Friday.
Cipollone said the move would attract more customers from banks and strengthen the case for the ECB to launch its own digital currency in response.
Stablecoins work similarly to money market funds in that they offer exposure to short-term interest rates in official currencies.
Instead, a digital euro would essentially be an online wallet guaranteed by the ECB but operated by a company like a bank.
It would allow people, including those without bank accounts, to make payments. Deposits will likely be capped at a few thousand euros and will not earn interest.
Banks have raised concerns that a digital euro will deplete their reserves as customers may move some of their money to wallets guaranteed by the ECB.
The eurozone’s central banks are currently experimenting with how a digital euro could work in practice. However, a final decision on its launch will only be made after European lawmakers pass legislation on the matter.
Trump’s executive order also bars the Federal Reserve from issuing its own central bank digital currency (CBDC).
Nigeria, Jamaica and the Bahamas have launched digital currencies, while 44 other countries, including Russia, China, Australia and Brazil, are working on pilot projects, according to the Atlantic Council think tank.
