Can the Digital Euro Be the Difference Maker the EU Needs?
The U.S. dollar has long anchored the global financial system, while Visa and Mastercard have powered much of the world’s card-based commerce. But the rise of stablecoins and growing concerns over reliance on U.S.-based financial infrastructure are prompting governments around the world to seek greater control over the future of money. In Europe, that effort has taken shape in the form of the digital euro.
This has driven a broader push in many regions to reduce reliance on foreign financial services firms, particularly U.S.-based companies such as Visa and Mastercard. In its drive toward financial sovereignty, the European Union has spotlighted a central bank digital currency (CBDC), the digital euro, as a key component of its payments strategy.
While the digital euro is not a novel concept—discussions around the CBDC began six years ago—the European Central Bank (ECB) has accelerated efforts to bring the long-awaited currency to fruition.
The latest milestone: the ECB has selected the 36 financial services firms that will participate in a yearlong pilot expected to kick off in the second half of next year. The trials will involve operational tests of a beta version of the digital euro.
“This is one of the strongest signals yet that the digital euro is moving from concept to execution,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “The mix of participants is notable and suggests the ECB recognizes adoption will depend on existing payment providers rather than replacing them. The pilot is as much about a diverse ecosystem as much as it is about the technology.”
Escaping the Holding Pattern
The trial participants run the gamut from traditional financial institutions like Deutsche Bank and UniCredit to fintechs including Revolut and Stripe. According to the ECB, more than 50 firms applied to participate in the process, highlighting the strong industry interest in bringing the digital euro to fruition.
The pilot represents another milestone for a project that is gaining momentum after years of being stuck in a holding pattern. However, progress toward a digital euro has not eliminated questions about whether a CBDC is necessary in an already crowded payments landscape.
Lawmakers and industry participants have pointed to the growing presence of digital assets, real-time payment systems, and global networks operated by Visa and Mastercard as evidence that consumers and businesses already have a wide range of payment options.
There are also concerns that a CBDC could compete with other EU-based based payment initiatives, such as the Wero pay-by-bank platform launched by many of the region’s leading lenders, including Deutsche Bank and BNP Paribas.
Meanwhile, euro-backed stablecoins are already gaining traction. These include Circle’s EURC stablecoin, which accounts for over 90% of transfer volume outside of USD-pegged stablecoins.
The Challenges to the CBDC
Beyond competitive pressures, the ECB and participating institutions must navigate the operational, privacy, and security considerations involved in introducing a new form of digital money.
“The liability and fraud part is going to be tricky, so they need to ask for clear and specific rules for these types of situations,” Hugentobler said. “They also need a ‘standardized integration’ stack or package to enable seamless integration and greater adoption. No one participating should be reinventing the wheel here, but a solid framework needs to be in place or it won’t gain traction.”
One immediate hurdle is the cost of building and maintaining the infrastructure required to support the CBDC. Under the ECB pilot, participating firms are expected to take on much of that responsibility themselves, which helps explain why the trial participants are primarily large financial services players with the resources to support the initiative.
The project also faces political complexity among the EU’s 27 member states, which have differing views on how a digital euro should operate. Countries have debated issues such as how much CBDC should be allowed to hold—a discussion that ultimately led EU finance ministers to impose limits on digital euro holdings last year.
Beyond implementation and policy concerns, some member states remain wary of the data implications of a central bank-issued digital currency. Because the digital euro would be issued by the ECB, questions remain over how the central bank would manage and use the substantial transaction data generated by the system.
Keeping on Target
The EU’s commitment to the digital euro remains strong, with the CBDC viewed as a central pillar of its comprehensive plan to overhaul its payments infrastructure. To this end, the European Parliament’s Economic and Monetary Affairs Committee recently approved draft legislation for the CBDC, keeping the project on track for a potential 2029 launch.
The goal of the digital euro is to position the EU as a stronger global financial services force. However, many variables could still shape the future of the CBDC, including the outcome of next year’s pilot.
