The European Central Bank’s push toward a digital euro is increasingly framed not as a disruptive experiment, but as a defensive strategy to preserve Europe’s financial sovereignty. ECB Executive Board member Piero Cipollone has argued that a well-designed central bank digital currency would protect European banks and domestic card schemes at a time when private payment platforms, stablecoins and global networks are reshaping the payments landscape.

The debate over a digital euro has often centered on fears that central bank accounts could displace commercial banks, siphoning deposits away from traditional institutions. Cipollone’s argument turns that concern on its head. In his view, banks face a greater threat from the rapid digitalization of payments and the dominance of non-European card networks than from a public digital currency. Properly structured, the digital euro would embed banks at the core of the system while strengthening Europe’s autonomy over financial infrastructure.

The initiative reflects broader anxieties in Europe about strategic dependence, particularly as geopolitical tensions have exposed vulnerabilities in energy, supply chains and technology. Payments infrastructure, long taken for granted, has emerged as another domain where reliance on foreign providers carries potential risks.

Preserving Banks’ Role in a Changing Payments Ecosystem

Cash remains the only form of central bank money directly accessible to citizens. As its use declines across the euro area, private digital payment options have expanded rapidly. Card transactions, mobile wallets and online transfers now dominate retail payments, often routed through international schemes.

For commercial banks, this shift has produced mixed effects. While digitalization creates new service opportunities, it also erodes direct customer relationships when transactions flow through external platforms. Payment data, once a core asset of banks, increasingly sits with technology firms or global card networks. That data underpins credit scoring, marketing and cross-selling strategies.

Cipollone’s defense of the digital euro emphasizes that without intervention, banks risk losing both revenue streams and informational advantages. Stablecoins and fintech platforms can bypass traditional intermediaries, embedding payments within broader digital ecosystems. If banks become mere custodians of deposits while payment flows migrate elsewhere, their strategic relevance diminishes.

Under the ECB’s proposed model, banks would distribute and manage digital euro wallets for customers. The central bank would provide the core infrastructure, but private institutions would remain the interface with users. This “two-tier” system mirrors the existing monetary framework, where central bank money circulates through commercial banks rather than replacing them.

By ensuring that banks retain customer relationships and compliance responsibilities, the ECB aims to prevent disintermediation. Rather than drawing deposits away, the digital euro would coexist with bank accounts, subject to holding limits designed to avoid destabilizing flows.

Strengthening Domestic Card Schemes

Beyond banks, the digital euro project is positioned as a safeguard for Europe’s fragmented payment landscape. Only a minority of euro area countries operate national card schemes. The remainder rely heavily on international networks such as Visa and Mastercard, which process the majority of cross-border transactions.

This reliance has been classified by European policymakers as a strategic risk. If geopolitical tensions escalate or commercial disputes arise, dependence on foreign-controlled infrastructure could constrain policy autonomy. Even absent political friction, fees charged by international networks can weigh on merchants and consumers.

Cipollone has argued that the digital euro infrastructure would enable domestic schemes to expand beyond national borders. Through “co-badging” arrangements, national card systems could operate across the euro area using shared digital euro rails. This would allow local networks such as Italy’s Bancomat or Spain’s Bizum to compete more effectively at a continental scale.

Importantly, the ECB intends to structure fee caps so that using domestic schemes remains more economical for merchants than relying on international networks. The digital euro would sit between the two, priced lower than global card schemes but higher than the cheapest domestic alternatives. This calibrated approach seeks to avoid cannibalizing national systems while reducing excessive dependence on external providers.

The strategy reflects a broader European objective: building internal capacity rather than pursuing outright protectionism. By enhancing interoperability and lowering cross-border barriers, policymakers hope to foster a more integrated payments market without undermining competition.

Responding to the Rise of Stablecoins and Private Digital Money

Another driver behind the digital euro initiative is the rapid evolution of private digital currencies. Stablecoins pegged to major currencies have gained traction in global finance, facilitating cross-border transfers and decentralized applications. Large technology firms have explored proprietary payment tokens, raising concerns among regulators about monetary sovereignty.

Cipollone has warned that banks could lose ground not only to card networks but also to stablecoin issuers offering seamless, low-cost transactions embedded in digital platforms. In such a scenario, monetary policy transmission and financial stability oversight could become more complex.

A central bank digital currency provides a public anchor in this shifting landscape. By offering a risk-free digital payment instrument backed by the ECB, policymakers aim to maintain confidence in central bank money even as cash usage declines. The digital euro would serve as a reference point for innovation, ensuring that private solutions operate within a framework shaped by European institutions.

The design under discussion includes offline functionality to replicate some of cash’s resilience, along with privacy safeguards intended to address citizen concerns. Transactions would not be fully anonymous, but data minimization principles would limit surveillance risks. Balancing privacy with anti-money laundering compliance remains a central challenge.

Economic Security and Strategic Autonomy

The digital euro debate has moved beyond technical feasibility to encompass economic security. European leaders increasingly view financial infrastructure as part of the continent’s strategic toolkit. The COVID-19 pandemic and subsequent geopolitical shocks underscored vulnerabilities in global interdependence.

By establishing a European-controlled digital payments backbone, the ECB seeks to insulate the region from external shocks. Even if international card networks continue operating smoothly, having an alternative reduces systemic risk. Diversification, rather than exclusion, is the guiding principle.

Legislative backing from European institutions has signaled political momentum. Lawmakers describe the project as essential for economic resilience, ensuring that citizens and businesses can transact “anytime and anywhere” within the euro area. The planned launch in the latter part of the decade reflects the complexity of designing a secure, scalable system.

For banks, the digital euro presents both adaptation costs and strategic opportunities. Integrating new infrastructure requires investment in technology and compliance systems. Yet participation ensures continued relevance in a payments environment that might otherwise drift toward non-bank actors.

Cipollone’s argument rests on the premise that inaction poses greater risk than innovation. As payment habits evolve and digital currencies proliferate, preserving Europe’s banking core requires proactive modernization. The digital euro is positioned not as a threat to the existing system but as its reinforcement—an effort to anchor the region’s financial architecture amid accelerating technological change and intensifying global competition.

(Adapted from Finextra.com)

Categories: Economy & Finance, Regulations & Legal, Strategy