It’s the same old story. For years now, the ECB has been studying a solution to create the digital euro, and now—without yet having a clear idea of how to implement it—officials at various levels are feeling under pressure due to the new legislation recently approved by the US Congress on stablecoins: we are talking about the Genius Act (and “appendices”) that we discussed in our in-depth analysis on July 25.
The problem is quite clear. Among the G10 currencies, we have the US dollar, which the US executive has decided to anchor to tokens issued by public blockchains such as Tether and Circle and to definitively abandon the CBDC (Central Bank Digital Currency) project, which is even excluded by law. Switzerland also stands out, having created a private blockchain to manage the digital franc at the banking system level only: we are talking about the Helvetia project, which began its pilot phase in 2023 for the wholesale market and recently decided to extend the test phase until 2027 before adopting a digital currency issued by the SNB for the banking market only, excluding private individuals for reasons of excessive risk: in a panic situation, there could be a rush to bank branches to buy digital state currency, but this would cause banks to fail. Great Britain is considering this (a characteristic that makes it very European), but is still in the research phase. And then there is the case of China: a digital yuan (e-CNY) that runs alongside the physical currency and operates on Celo (a Layer 2 of Ethereum) intended for retail use to facilitate financial inclusion with a controlled system to ensure privacy and cross-border transactions; it has been in the pilot phase for several years, but is spreading rapidly.
For a comprehensive and detailed overview of the state of the art of CBDCs, we recommend visiting this website.
The European dilemma is understandable: in terms of digital payments, if we also include credit card payments, there is no European circuit, but total dependence on American ones (Visa and Mastercard in particular). A digital euro, not only issued and guaranteed by the ECB, but with a circuit (e.g., a private blockchain) controlled by the ECB, would compete with American credit card circuits. However, the use of a single blockchain may limit the spread of a CBDC, and the United States’ choice on stablecoins poses a further challenge to European officials who are already rethinking the digital euro project with further delays. Of course, the use of public blockchains (there are already some stablecoins linked to the euro, such as Stasis euro or Circle’s EURC, but their capitalization is negligible) poses privacy issues because transactions are pseudo-anonymous, while a private blockchain can provide absolute control over confidentiality (and also a gold mine of information for tax authorities). Yet the Chinese alternative is already in the pilot phase and can therefore be studied. Of course, there is no need to stimulate financial inclusion in Europe, and therefore extending the digital euro to private individuals appears too risky. But while this is understandable, there is another model that Europe can take as a reference and which is already in an advanced testing phase: the Helvetia project. The time is therefore ripe for a decision to be made. Failing to take decisions on this matter, for an economy as important as that of the old continent, could lead to very unpleasant consequences.
Disclaimer
This post expresses the personal opinion of the Custodia Wealth Management staff who wrote it. It does not constitute investment advice or recommendations, personalized advice, and should not be considered an invitation to carry out transactions on financial instruments.
