A new report suggests that the European Union is looking into using the Ethereum or Solana blockchains as the foundation for a digital euro. The move comes as a proposed U.S. stablecoin law increases pressure on the EU to solidify its own digital currency plans.
After Washington passed a comprehensive stablecoin law that many in Brussels perceive as a threat to the competitiveness of the EU’s single currency, European officials are accelerating the development of a digital euro.
The Financial Times reported that individuals knowledgeable of the negotiations stated that the transition commenced following the United States’ approval of the Genesis Act, also known as the Guiding and Establishing National Innovation for US Stablecoins Act.
Since then, officials have been reevaluating the structure of the European initiative.
EU Is Pressured To Accelerate Plans Due To Swift US Action On Crypto Regulation
The Genius Act, which was signed into law by President Donald Trump in July, establishes the initial comprehensive regulations for the $288 billion stablecoin market.
Issuers of dollar-pegged tokens must maintain their complete reserves in liquid assets, fulfill their licensing obligations, and adhere to rigorous reporting standards under the legislation. Advocates contend that the framework enhances consumer protection while simultaneously allowing for innovation, a balance that regulators had previously encountered difficulty achieving.
In Europe, the swift action from Washington has unsettled policymakers, advancing their project more cautiously.
Debate Grows Over Public Blockchain Versus Private Ledger For Digital Euro
According to reports, officials are currently deliberating whether a digital euro should operate on a public blockchain, such as Ethereum or Solana, as opposed to previous plans that recommended a private ledger under the jurisdiction of the European Central Bank.
Critics caution that public networks expose transactions to scrutiny and raise privacy concerns, while supporters argue that the euro could be circulated more widely by utilizing an open blockchain.
Supporters Argue Open Blockchain Could Expand Euro’s Reach Beyond Europe
In October 2021, the European Central Bank initiated an investigation into the concept of a digital euro. Since then, the initiative has been perceived as a digital currency issued by a central bank. Its objective is to serve as a currency adjunct and accommodate a more digital economy. Furthermore, it endeavors to ensure that Europeans continue to have access to central bank funds. Lastly, it endeavors to mitigate its dependence on foreign payment providers.
Most eurozone payments are processed by international card networks, with non-European firms accounting for 68% to 72% of transactions.
Officials are concerned that the global demand for dollar-backed tokens could be accelerated if the US regulatory framework is not addressed promptly. Consequently, the euro’s influence on cross-border payments may diminish.
The geopolitical implications of the design decision are significant. The Chinese central bank’s approach to its digital yuan, which is rigidly regulated, would be mirrored by a private, ECB-run system. In contrast, a euro founded on a public blockchain would be more in line with the model private firms in the United States have advocated for.
Some policymakers contend that implementing a digital euro on an open blockchain could enhance the currency’s influence beyond the union.
Others are concerned that it would introduce hazards that Europe has been striving to mitigate for an extended period. The debate has gained urgency in the aftermath of Washington’s move, but both options are currently on the table.
